TLDR
- Wall Street banks and consumer advocates have jointly called for changes to the GENIUS Act on stablecoins.
- They are concerned that the law allows crypto firms to bypass state financial regulations.
- A joint letter was sent to U.S. senators requesting the removal of a key section from the GENIUS Act.
- The banking industry argues that stablecoin issuers could threaten deposits and traditional lending.
- The GENIUS Act bans issuers from offering interest but does not restrict affiliated firms from doing so.
Wall Street banks and consumer advocates have joined forces to demand revisions to the newly passed GENIUS Act on stablecoins. They raised concerns about provisions allowing stablecoin firms to bypass state laws and gain unfair market advantages. These groups sent letters to U.S. senators urging changes that would protect financial stability and regulatory consistency.
Banks and Advocates Unite Against GENIUS Act
Major banking groups, including the American Bankers Association, argue that the GENIUS Act weakens state authority over financial services. One section allows stablecoin-issuing arms of state-chartered uninsured banks to operate nationally without full regulation. Banks claim this creates loopholes that allow crypto firms to avoid oversight.
Consumer-focused groups like Americans for Financial Reform and the National Consumer Law Center joined the banks’ push for revisions. In a joint letter to senators dated August 13, they requested that this section be removed. They stated,
“Ignoring state law… invites regulatory arbitrage,” suggesting it offers crypto firms unfair privileges.
This collaboration marks a rare alignment between Wall Street and its usual critics, signaling the seriousness of their concerns. The GENIUS Act’s national licensing model, they argue, mirrors rights granted to federally insured banks without equal responsibility. Banks warn it could lead to a two-tier regulatory framework, disadvantaging traditional financial institutions.
Concerns Over Interest Payments on Stablecoins
Another key issue is the potential for crypto firms to offer interest on stablecoins through affiliates, despite the GENIUS Act’s restrictions. While the Act bans stablecoin issuers from offering yield directly, it doesn’t stop affiliated platforms from doing so. Bank groups argue this gap could drain deposits from the banking system.
In a second letter, they wrote that “Congress must protect the flow of credit” and urged lawmakers to fix this “interest loophole.” The groups believe that stablecoins could become competitors to money-market funds and traditional bank deposits. They argue that this threatens banks’ ability to support lending to businesses and consumers.
Faryar Shirzad of Coinbase responded on X, questioning banks’ claims of a $6 trillion deposit risk. He stated,
“If customers really would move $6T… what does that say about the value consumers feel they’re getting from their banks?”
Calls for Further Legislative Changes Continue
Although the GENIUS Act is now law, financial groups hope for changes in the upcoming crypto regulation. The Digital Asset Market Clarity Act, which has passed the House, may modify GENIUS Act provisions before full implementation. Banks and advocates are urging senators to act before regulators finalize rules.
President Trump signed the GENIUS Act, but it remains just one part of a broader U.S. crypto regulatory agenda. The financial sector views this moment as critical to ensuring a stable and fair economic system.
