U.S. Banks Seek Amendments to GENIUS Stablecoin Act Over "Loophole" Concerns

Recent lobbying efforts by major U.S. banking groups aim to modify the newly enacted GENIUS stablecoin Act. Their concerns revolve around specific provisions that they believe could create an uneven competition landscape between traditional banks and crypto exchanges.

Key Takeaways

U.S. banking organizations are lobbying to amend the GENIUS stablecoin Act, which became law in July.
The Act prevents stablecoin issuers from paying interest to holders, which banks argue favors crypto exchanges.
There are fears that stablecoins offering yields could lead to the withdrawal of significant funds from traditional banks.
Crypto industry leaders contend that concerns from banks are exaggerated and that the Act encourages competition.

U.S. banks move to amend GENIUS stablecoin Act over “loophole”

Main Content

Major banking institutions in the United States are advocating for changes to certain provisions of the recently enacted GENIUS stablecoin Act due to concerns about potential impacts on the traditional financial sector.

On August 25, the Financial Times highlighted that U.S. banking groups are actively working to persuade lawmakers to reconsider parts of the GENIUS legislation. This Act, which was passed in July, represents the first formal regulatory framework for stablecoins in the U.S. It aims to oversee the billion-dollar stablecoin market and preserve the country’s leading position in the industry.

One significant aspect of the regulation is the prohibition against stablecoin issuers directly paying interest or yields to holders. This measure is intended to promote stability within the system. Consequently, while banks are allowed to issue their own stablecoins, they cannot offer any interest to holders. In contrast, cryptocurrency exchanges are still permitted to provide rewards to users holding third-party stablecoins, including Circle’s USDC (USD Coin) and Tether (Tether). Bank representatives are labeling this scenario as a “loophole,” arguing that it unfairly favors crypto exchanges over traditional banks. They warn that this could encourage customers to move their deposits from banks to exchanges that offer superior returns, thus creating an unbalanced playing field.

The banking groups cited a Treasury report from April indicating that stablecoins offering yields could potentially siphon off as much as $6.6 trillion from the traditional banking system, ultimately threatening the stability of banks.

Conversely, representatives from the crypto industry are reportedly countering the banks' arguments, asserting that the fears articulated are overblown. Advocacy organizations such as the Crypto Council for Innovation and the Blockchain Association argue that the perceived “loophole” in the GENIUS Act is not a defect but a crucial element that fosters competition and innovation within the sector.

They maintain that limiting exchanges' ability to offer rewards would unjustly favor banks and restrict consumer options. Prominent figures in the crypto space, like Coinbase’s chief legal officer, Paul Grewal, have criticized the banks’ apprehensions, advocating for an industry evolution free from unnecessary regulatory constraints.

The GENIUS stablecoin Act is being viewed as a significant regulatory development for the industry, providing long-awaited clarity for this asset class. However, the current debate illustrates the tensions that are rising as regulatory frameworks are established, emphasizing the importance of finding a delicate balance that supports both innovation and stability in the financial landscape.