- More than 200 community bank leaders worry that crypto firms are using exchanges and partners to sidestep the GENIUS Act’s ban on stablecoin interest.
- The banking group says this loophole could shift deposits away from banks and reduce local lending.
- The group warned up to $6.6 trillion in deposits could be at risk, citing a U.S. Treasury report.
- Regulators and lawmakers face calls to clarify that the interest ban covers stablecoin issuers’ affiliates and partners.
- Crypto firms push back, urging clear rules so banks and stablecoin platforms can compete under comparable standards; stablecoin market size is tracked at about over $312 billion.
More than 200 community bank leaders this week urged U.S. senators to close a perceived loophole in federal stablecoin rules by tightening oversight of yield-based workarounds. The American Bankers Association’s Community Bankers Council sent a letter warning that crypto firms are routing rewards through affiliated exchanges to evade the GENIUS Act’s ban on interest payments. The group said the practice could draw customer deposits away from local banks and harm credit availability.
The letter stressed the law bars stablecoin issuers from paying interest so deposits remain available for loans to families and small businesses, and it said banks face an easy bypass via third-party rewards systems. "Community banks are the backbone of local economies," the letter said. The group asked Congress to clarify that the interest prohibition extends to issuers’ affiliates and partners.
The letter cited a U.S. Treasury report estimating up to $6.6 trillion in deposits could be at risk if customers migrate to yield-bearing stablecoins. Regulators have previously debated the scale of that threat: Jonathan Gould, head of the Office of the Comptroller of the Currency, said at the ABA convention any material deposit flight "would not happen in unnoticed fashion" and "would not happen overnight." He added, "If there were to be a material flight from the banking system, I would be taking action," and said elected officials and trade groups would intervene.
Crypto executives offered alternative views. Saravanan Pandian, CEO of KoinBX, warned "strict policies can push activity towards unverified channels, which can ultimately end up being challenging for all stakeholders." Nitesh Mishra, co-founder and CTO of ChaiDEX, called the $6.6 trillion figure "somewhat blown out of proportion," said banks are "directionally right," and urged a "clear definition between interest and reward" plus robust standards and licensing so firms can compete fairly. Market trackers place the stablecoin sector at about $312 billion, while prediction markets show a low short-term chance of rapid growth, with one market giving a 3% probability of surpassing $360 billion by February according to Myriad.
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