US community bankers want changes to the GENIUS Act beyond stablecoin product concerns
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A coalition of US community bankers is asking Congress to amend the GENIUS Act, which contains a loophole that would allow product-generating stablecoins to compete directly with traditional bank deposits.
Key Takeaways:
American community banks are asking Congress to close what they see as a loophole that allows stablecoin rewards.
Banks warn that exchange incentives tied to Statcoins could drain deposits and weaken domestic credit.
Crypto industry groups dispute the claims, arguing stricter regulations limit innovation without protecting bank lending.
In a letter to the Senate Monday, the American Bankers Association's Council on Community Banks asked lawmakers to tighten restrictions on the stablecoin framework passed last year.
The group said the bill should be clarified to prevent stablecoin issuers from indirectly offering products to tokenholders through third parties.
The council, which represents more than 200 community bank leaders, wrote that “some companies have exploited a loophole that allows stablecoin issuers to indirectly pay stablecoin holders through digital asset exchanges and other partners.”
The GENIUS Act expressly prohibits stablecoin issuers from paying interest or profits, reflecting lawmakers' concerns that yielding tokens could siphon funds from insured bank savings accounts.
Community banks argue that the purpose of that provision is being undermined by crypto platforms that offer rewards tied to statcoin holdings.
Major exchanges such as Coinbase and Kraken offer incentives to users who hold certain stablecoins on their platforms, although the issuers themselves do not directly pay for production.
According to the council, this volatility can take away deposits from local banks and weaken their lending capacity.
“With this move, the exception trumps the rule,” the group said, warning that a large influx of deposits could reduce access to credit for small businesses, farmers, students and home buyers in local communities.
The banks also argued that exchanges and associated crypto companies are not equipped to replace banks as lenders and do not offer products backed by federal deposit insurance.
As a result, the House requested that the GENIUS Act's profit ban be extended to affiliates and partners of stablecoin issuers under the pending crypto market structure legislation.
The letter adds to the pressure from banking groups. The Banking Policy Institute, chaired by JPMorgan CEO Jamie Dimon, raised similar concerns last year, warning that unchecked stablecoin incentives could siphon trillions of dollars out of the traditional banking system.
Crypto groups reject bank claim, warn of strict stablecoin rules
Crypto industry groups have pushed back. The Crypto Council for Innovation and Blockchain Association previously told lawmakers that payment stablecoins should not be used to support loans and argued that strict rules would stifle innovation and limit consumer choice.
In November, Coinbase Global asked the U.S. Treasury Department to ensure that its upcoming rules for the Genius Act remain faithful to Congress' original intent.
The exchange warned that excessive regulation could stifle innovation and undermine US leadership in crypto.
The Genius Act also clarifies that the ban on interest payments applies only to stablecoin issuers, not to exchanges or intermediaries offering loyalty or rewards programs.
“Treating third-party rewards or loyalty programs as prohibited ‘interest' rewrites Congress' carefully drawn lines and conflicts with the intent of the law,” Coinbase said.
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