US Bankers Warn Stablecoin Yield Workarounds Threaten Local Lending
Industry figures argued that banks’ concerns are valid but exaggerated, urging the creation of comparable rules without stifling innovation.
In brief
- More than 200 community bank leaders have warned that crypto companies are exploiting regulatory gaps in the GENIUS Act.
- The ABA estimates up to $6.6 trillion in deposits could flee to yield-bearing stablecoins, threatening credit availability.
- The OCC chief had previously downplayed banks’ concerns, saying any material deposit flight "would not happen overnight."
Community banks are looking to close a loophole in federal stablecoin rules, urging U.S. senators to tighten oversight of yield-based workarounds.
The American Bankers Association's Community Bankers Council sent a letter to lawmakers on Monday, warning that crypto companies are skirting the GENIUS Act's ban on stablecoin interest payments by funneling rewards through affiliated exchanges.
More than 200 community bank leaders expressed concern that while the law prohibits stablecoin issuers from paying interest, a safeguard to ensure deposits fund loans for families and small businesses, some companies are circumventing Congressional intent through indirect payments.
"Community banks are the backbone of local economies," the letter said. "Allowing inducements like interest or rewards on stablecoins could incentivize customers to move savings out of banks, jeopardizing the lending that fuels growth in towns across America."
The letter warns that without stronger legislative clarity, up to $6.6 trillion in deposits could be at risk, threatening credit availability nationwide, citing a U.S. Treasury report from last year.
The ABA's Community Bankers Council is calling on Congress to clarify that the interest prohibition applies to stablecoin issuers' affiliates and partners.
"Anything less will put economic growth and local communities at risk," the letter concludes.
The banking industry has been sounding alarms since the passage of the GENIUS Act last July, with the ABA, Bank Policy Institute, and over 50 state banking groups writing to Congress in August to warn that "the restriction is easily bypassed because exchanges or other third parties can still offer rewards to stablecoin holders."
However, Jonathan Gould, head of the Office of the Comptroller of the Currency, downplayed concerns at the ABA's Annual Convention last October, saying any material deposit flight "would not happen in unnoticed fashion" and "would not happen overnight."