U.S. Community Banks Call for Revision of GENIUS Act, Demand Closure of Stablecoin "Yield Loophole"

Odaily News U.S. community banks are urging Congress to amend the GENIUS Act to close what they see as a regulatory loophole that allows stablecoins to "pay interest in disguise." In a letter to the Senate this week, the Community Bankers Council of the American Bankers Association stated that some stablecoin issuers are indirectly providing yields to token holders through third parties like digital asset exchanges, undermining the Act's prohibition on stablecoin interest payments.

The GENIUS Act previously explicitly prohibited stablecoin issuers from directly offering interest or yields to holders to avoid competition with bank savings accounts. The Community Bankers Council pointed out that some trading platforms, including Coinbase and Kraken, still offer reward mechanisms to holders of specific stablecoins on their platforms, which could impact community banks' deposit-taking and lending capabilities. The organization calls for the ongoing crypto market structure legislation to explicitly prohibit stablecoin issuers' affiliates or partners from providing yields to token holders.

The report also mentions that the Bank Policy Institute had previously raised similar concerns, arguing that such practices could trigger deposit outflows from the traditional banking system. Meanwhile, crypto industry groups like the Crypto Council for Innovation and the Blockchain Association have expressed opposition to the Senate, stating that payment-focused stablecoins are not intended for lending, and further tightening rules could stifle innovation and limit consumer choice. (Cointelegraph)