TLDR
- Over 100 community bank leaders have urged U.S. senators to close loopholes in stablecoin legislation.
- The American Bankers Association warned that up to $6.6 trillion in deposits could leave traditional banks.
- Bankers claim stablecoin issuers offer indirect yield incentives that threaten community lending systems.
- The ABA said the GENIUS Act failed to prevent stablecoin affiliates from rewarding users through third parties.
- JPMorgan responded by stating that stablecoins do not pose a systemic risk to the banking sector.
More than 100 U.S. community bank executives have asked lawmakers to tighten stablecoin laws, warning of huge deposit outflows, while JPMorgan has dismissed the concerns, describing stablecoins as one of many coexisting payment methods, pushing back on the American Bankers Association’s growing alarm.
Community Bankers Cite Trillions at Risk
Community bank leaders urged U.S. senators to plug legal loopholes in stablecoin rules. They cited risks to trillions in traditional deposits. Their Jan. 5 letter, sent via the ABA’s Community Bankers Council, warned of widespread impacts.
The bankers said stablecoin issuers are bypassing interest bans by offering indirect yield. These incentives could attract depositors away from local banks. This, they argue, would weaken local credit access.
“Allowing inducements like interest payments, yield, or rewards could incentivize customers to park their savings not in a bank, but in stablecoins,” the letter stated.
The ABA referenced Treasury estimates placing $6.6 trillion of deposits at risk. They argued current rules do not fully address these practices.
The GENIUS Act, recently passed, aimed to regulate stablecoins. But community bankers say it failed to stop indirect rewards via crypto exchanges. They now seek stricter controls on affiliated parties.
The bankers stressed that community lending would suffer if deposits shrink. They said small businesses, students, and farmers depend on local credit. Unlike banks, stablecoin firms lack deposit insurance.
JPMorgan Rejects Systemic Risk Concerns
JPMorgan took a different stance on stablecoin growth. It dismissed the idea that they pose a systemic threat. A spokesperson said stablecoins represent just one layer in a broad money system.
“There have always been multiple layers of money in circulation,” said the spokesperson. “This won’t change,” they continued. “There will be different, but complementary, use cases.”
JPMorgan sees deposit tokens and stablecoins as part of a larger payments landscape. Their view contrasts with smaller banks’ warnings. This reflects a divide in banking sector perspectives.
Crypto analyst Joel Valenzuela called the letter a familiar move. “Stablecoins present direct competition,” he said. “Banks are trying to protect their interests.”
Bank trade groups have repeatedly opposed stablecoins. In previous letters, they pushed to restrict issuance to banks. Some also called for banning tokens offering returns.
Industry Figures Question Banking Motives
Others in the crypto sector criticized the bankers’ concerns. Michael Treacy of OpenPayd said it was about protecting old business models. He questioned the intent behind the regulation push.
“This is less a stablecoin debate,” Treacy stated. “It’s more about enabling competition,” he added in response to the ABA’s letter. He drew parallels to money market fund debates.
Crypto lender Bitlease also responded. Founder Nima Beni labeled the concerns as fear-driven. “It’s because banks failed to offer competitive, transparent products,” he said.
The ABA is now pushing for Congress to expand the GENIUS Act. They want the law to also cover stablecoin affiliates and partners. This would affect exchanges offering indirect yield.
