The first official US stablecoin law, known as the GENIUS Act, is already facing pushback from major banking groups that argue some provisions could destabilise the traditional financial sector.
Passed in July 2024, the legislation was intended to bring clarity to the multibillion-dollar stablecoin industry while securing the country’s leadership in digital assets.
However, banks warn that the restrictions on paying interest to stablecoin holders could divert vast sums away from deposits, threatening balance sheets.
On 25 August, the Financial Times reported that banking groups have begun lobbying lawmakers to amend the rules before the impact becomes significant.
GENIUS Act prevents banks from offering yield
The GENIUS Act introduced a framework for the issuance and oversight of stablecoins, but it also placed clear limits on how issuers can operate.
A key measure prohibits banks issuing their own stablecoins from paying any interest or yield to holders.
The rule was designed to maintain stability in the system and prevent speculative use of digital assets that are meant to mirror fiat currency.
While banks are restricted, crypto exchanges can still offer rewards to customers holding stablecoins issued by third parties, such as Circle’s USD Coin (USDC) or Tether (USDT).
Bank representatives have labelled this a loophole, arguing it gives exchanges a competitive advantage and could influence customer behaviour.
Banks warn of $6.6 trillion outflow
Banking groups have pointed to an April Treasury Department report to highlight the potential risks.
The report estimated that yield-bearing stablecoins could divert up to $6.6 trillion from the traditional banking system if consumers and businesses move deposits to exchanges promising higher returns.
Such outflows, they argue, would not only erode banks’ ability to lend but could also create new vulnerabilities in the wider financial sector.
The groups are pressing lawmakers to reconsider these specific provisions, warning that unless the imbalance is addressed, the sector could face instability.
Their lobbying efforts reflect growing concern within established finance that the rules could accelerate a migration of funds from banks to digital platforms.
Crypto industry rejects concerns
Industry advocates have dismissed the banks’ position, saying the rules reflect an intentional balance between innovation and oversight.
The Crypto Council for Innovation and the Blockchain Association have argued that the so-called loophole is not a flaw but a way to encourage competition.
Restricting exchanges, they claim, would tilt the market in favour of banks while reducing consumer choice.
Figures in the sector, including Coinbase’s chief legal officer Paul Grewal, have pushed back against suggestions of destabilisation, maintaining that exchanges should retain the ability to reward users for holding stablecoins.
They stress that the GENIUS Act is a milestone for regulatory clarity in the US, one that finally provides a framework for a rapidly growing asset class.
The post US banks lobby to amend GENIUS stablecoin Act, citing $6.6 trillion risk appeared first on Invezz