That’s because bank products, services, and loans are funded by deposits, and the crypto industry wants to siphon those deposits away from banks. The consequences are so serious because deposits provide almost all of the funding that banks use to make loans to the real economy, including mortgages, auto loans, credit cards and loans to small, medium, and large businesses. Put simply, if there is less money deposited in banks because people are lured into putting their money into interest-bearing stablecoins instead, there will be less lending to households and businesses. Deposits are vital to the banking system and the real economy because 1) banks fund their loans almost entirely with deposits and 2) banks are the safest, cheapest, and best source of lending.
If stablecoin issuers grow large as a result of the ability to offer interest via the GENIUS Act loophole, this would slow the economy and starve borrowers from getting much-needed credit, especially Main Street households and businesses. This would affect the entire economy, but especially consumers and small businesses who already have the most limited access to credit and pay the highest rates to borrow. There will be less lending to households and businesses. Put simply, a dollar of savings put into a stablecoin is a dollar that is not deposited at a bank.
Economists at the Fed Bank of Kansas City estimate that an increase in stablecoins to just $900 billion would result in a reduction in bank lending of $325 billion. The banking industry wants Congress to retroactively amend the GENIUS Act through this pending legislation to bar all crypto companies from paying yield to customers who hold stablecoins. This is necessary, in the banks’ view, so that stablecoins do not drive deposit flight that would undercut Main Street lending. Deposits enable individuals to obtain mortgages, auto loans, and credit cards and loans to small, medium, and large businesses.
Deposits fund almost all bank lending to the real economy, supporting mortgages, auto loans, and consumer credit. The crypto sector’s push for interest-bearing stablecoins could lure funds away from banks, potentially reducing the funding available to households and businesses. If this deposit flight occurs, lending to households and firms would shrink, weighing on economic growth. If stablecoin issuers grow under the GENIUS Act loophole, the economy could slow as deposit-driven lending tightens.
Consumers and small businesses—already facing higher borrowing costs—could see reduced access to credit when banks lose stable funding. In short, a dollar saved in a stablecoin is a dollar pulled from bank balance sheets, with broad macro implications. Fed Bank of Kansas City economists estimate that increasing stablecoins to $900 billion could reduce bank lending by about $325 billion. The banking sector is urging Congress to amend the GENIUS Act to bar yield payments on stablecoins, arguing this would prevent deposit flight and preserve Main Street lending.
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