TLDR
- Keith Kelley warns that GENIUS Act rewards could harm small banks in rural America.
- Kelley highlights that crypto platforms could drain deposits from local banks.
- The senator calls for closing the GENIUS Act loophole to protect rural economies.
- Crypto rewards could limit small bank lending, impacting local businesses and farms.
Alabama state Senator Keith Kelley has voiced concerns over the potential risks associated with the GENIUS Act, a federal bill signed into law in July 2025. The Republican senator warns that the act’s loophole could drain deposits from small community banks, especially those in rural areas like many in Alabama. He argues that this would disrupt the local lending infrastructure, which heavily relies on deposits to finance loans for farms, homes, and small businesses.
In an op-ed for 1819 News, Kelley described how the act would allow cryptocurrency platforms to offer rewards that could encourage individuals to withdraw their funds from community banks.
While large national banks have more resources to weather such changes, small banks depend on local deposits for their lending capacity. This could result in fewer loans for rural communities, potentially stalling local economic growth.
How the GENIUS Act Loophole Could Impact Rural Lending
The GENIUS Act includes a provision that allows crypto platforms to distribute financial rewards, which Kelley believes could lure customers away from small banks. Community banks are crucial in rural communities, where they serve as primary lending institutions for farmers, small businesses, and homeowners.
The senator’s concern is that a drain on deposits would severely limit the banks’ ability to provide loans, creating a ripple effect that could destabilize local economies.
“Unlike large banks, community banks depend on local deposits to fund their lending,” Kelley stated. He further explained that for rural farming communities, where margins are thin and seasonal cash flow is crucial, the loss of a trusted lending partner could be devastating. With fewer loans available, farmers and small business owners could struggle to manage cash flow, leaving them vulnerable during lean times.
Concerns Over Crypto Platforms Offering Rewards
Kelley also highlighted that crypto platforms would not be subject to the same regulations as traditional banks. These platforms could offer rewards or yield-bearing products, giving them an unfair advantage over regulated financial institutions. While these rewards may seem attractive, crypto platforms lack FDIC protection. This means that if these platforms fail, consumers could lose all their funds, unlike bank deposits that are insured.
“The ability of cryptocurrency companies to function like banks without following the same rules is regulatory arbitrage,” Kelley explained.
He warned that allowing crypto companies to operate outside the traditional banking system could undermine the stability of local economies. This could lead to a widening gap between traditional banks and emerging digital platforms that offer incentives without the same safeguards.
Broader Debate and Potential Solutions
Kelley’s warning is part of a broader discussion about the GENIUS Act and its impact on the U.S. banking system. Some banking groups, such as the Bank Policy Institute, have voiced similar concerns.
They argue that the GENIUS Act could lead to up to $6.6 trillion in deposit outflows from traditional banks. This could weaken the credit flow to small businesses and individuals in areas that rely on community banks.
Kelley is calling for immediate action to close the loophole in the bill, urging Congress to work together to ensure that community banks are not harmed by unregulated crypto platforms. He believes that regulated financial institutions should be allowed to compete on fair terms to protect the livelihood of local economies and rural families.
