TLDR
- U.S. banking groups are asking lawmakers to revise the GENIUS Act due to concerns about a stablecoin yield loophole.
- The Act bans issuers from offering interest but does not stop exchanges from doing so with third-party stablecoins.
- Banks fear that yield-bearing stablecoins could lead to massive deposit outflows from the traditional banking system.
- The U.S. Treasury estimates that up to $6.6 trillion in deposits could shift away from banks if stablecoin yields grow.
- Crypto firms argue that the banking industry is trying to block innovation and protect its market dominance.
Major U.S. banking groups are urging lawmakers to revise the recently passed GENIUS Act. They claim a loophole allows crypto exchanges to offer yield on stablecoins. This push signals renewed tensions between traditional banks and digital asset platforms.
Banks Warn GENIUS Act Favors Crypto
The American Bankers Association, Bank Policy Institute, and Consumer Bankers Association raised concerns about the GENIUS Act. They argue that although the Act bans issuers from paying interest, it overlooks exchanges. This gap could allow platforms like Coinbase and Binance to offer yield on third-party stablecoins.
Such third-party coins include USDC from Circle and USDT from Tether. Banks fear this could shift massive deposits away from traditional institutions. They claim the GENIUS Act unintentionally favors crypto firms.
A Treasury report warned that yield-bearing stablecoins might trigger a $6.6 trillion deposit outflow. Banks say this would shrink available credit. In turn, small businesses and households could face higher borrowing costs.
Bank Lobby Groups Warn of Systemic Risks
Banking lobbyists say the GENIUS Act threatens financial stability if unchanged. “Deposit flight risk is real,” one association stated. They argue the Act could intensify stress during economic downturns.
The groups say stablecoin yields will become attractive alternatives. This could lead consumers to withdraw funds from banks, which they believe would pressure liquidity and impact the credit supply.
Meanwhile, some lawmakers support the banks’ concerns. They agree the GENIUS Act needs safeguards. Yet others believe the market should drive innovation.
President Trump and Treasury Secretary Bessent have shown support for digital assets. The White House appears aligned with crypto-friendly policies. Trump has publicly backed digital innovation.
Crypto Industry Rejects Amendment Push
Crypto organizations oppose the banks’ lobbying efforts. The Blockchain Association and Crypto Council for Innovation argue that the GENIUS Act protects incumbents and would limit innovation if it were changed.
Coinbase’s legal chief Paul Grewal called the banks’ position anti-competitive. He said lawmakers have already rejected similar arguments. “This is about blocking competition,” he stated.
This was no loophole and you know it. 376 Democrats and Republicans in the House and Senate rejected your unrestrained effort to avoid competition. So did one President. It's time to move on. https://t.co/CGCGxDqKNa
— paulgrewal.eth (@iampaulgrewal) August 13, 2025
Crypto firms insist they act within the law. They warn that altering the GENIUS Act now would hinder progress. Exchanges want regulatory clarity, not new barriers.
