Banking Lobby Sounds Alarm Over Stablecoin Yield ‘Loophole’ in GENIUS Act

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A coalition of US banking organizations, led by the Bank Policy Institute (BPI), is pressing lawmakers to amend the GENIUS Act, warning that its current language leaves room for stablecoin issuers to circumvent yield restrictions—a move they claim could destabilize the traditional banking sector.

In a letter to Congress, BPI highlighted concerns that the bill’s lack of explicit prohibitions on exchanges and affiliates could allow issuers to offer yields indirectly, incentivizing users to move funds out of banks. The group estimates that unchecked, this could trigger $6.6 trillion in deposit outflows, disrupting lending to businesses and households.

The GENIUS Act explicitly bans stablecoin issuers from paying interest, but critics say the legislation doesn’t prevent crypto platforms or partner firms from doing so. This could create a regulatory gray area where issuers collaborate with exchanges—such as Coinbase or Kraken—to offer rewards, effectively skirting the rules.

Yield programs have become a key growth strategy for stablecoins, with some issuers embedding them directly into their tokens, while others rely on third-party platforms. For example, USDC holders can earn rewards on exchanges, even though Circle itself doesn’t distribute yields.