- A coalition of community bankers urges Congress to tighten the GENIUS Act to stop yield on stablecoins paid indirectly.
- The bankers say exchanges are offering rewards that let stablecoin holders earn yield, which they view as a loophole.
- The coalition warned that such activity could shift deposits away from community banks and hurt local lending.
- The Banking Policy Institute, backed by JPMorgan CEO Jamie Dimon, previously raised similar concerns, citing a potential $6.6 trillion in outflows.
- Crypto advocacy groups including the Crypto Council for Innovation and the Blockchain Association disputed the banks’ claims and urged against changes.
A group of U.S. community bankers led by the American Bankers Association’s Community Bankers Council asked the Senate on Monday to amend the GENIUS Act to close what they call a loophole that lets stablecoin holders earn yield through third parties. The council made the request in a letter to lawmakers, saying the change is needed to protect community bank deposits and local lending.
The council said exchanges and other partners are effectively paying holders, quoting, “Some companies have exploited a perceived loophole allowing stablecoin issuers to indirectly fund payments to stablecoin holders through digital asset exchanges and other partners.” It pointed to platforms that give rewards to users who hold certain stablecoins on their platforms, naming firms such as Coinbase and Kraken as examples of venues offering those programs.
The bankers argued that exchanges and a broader group of affiliated firms “are not designed to fill the lending gap” and noted these entities couldn’t offer products insured by regulators. They warned, “With this activity, the exception swallows the rule,” adding, “If billions are displaced from community bank lending, small businesses, farmers, students, and home buyers in towns like ours will suffer.”
This push follows a similar appeal from the Banking Policy Institute, which wrote to lawmakers in August and warned of up to $6.6 trillion in potential deposit outflows. Two major crypto trade groups, the Crypto Council for Innovation and the Blockchain Association, countered the banks in a letter to the Senate Banking Committee, stating “payment stablecoins are not used to fund loans” and opposing the proposed revisions. The bankers also shared related materials on social media, including a post on X.
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