US Bank Groups Push to Close GENIUS Act Stablecoin Yield ‘Loophole’

Banks Sound Alarm Over Stablecoin Yield Risks

A coalition of U.S. banking associations, led by the Bank Policy Institute (BPI), is calling on Congress to tighten the GENIUS Act — warning that a perceived loophole could let stablecoin issuers skirt yield restrictions through affiliated businesses.

In a letter sent Tuesday, the group argued that this gap in regulation could disrupt the traditional banking system, potentially triggering $6.6 trillion in deposit outflows and reducing the flow of credit to American households and businesses.

The GENIUS Act and the Alleged Loophole

Signed into law by President Donald Trump on July 18, the GENIUS Act prohibits stablecoin issuers from directly offering interest or yield to holders. However, it does not explicitly ban crypto exchanges or affiliate companies from doing so.

This omission, banking groups say, could allow issuers to indirectly offer yield-bearing stablecoins by partnering with affiliated platforms.

Source: Bank Policy Institute

Related: Tokenized Gold Volume Hits $1B for First Time Since 2023 US Banking Crisis

Yield programs are already a key marketing tool in the stablecoin industry:

• Some issuers integrate yield natively into the token.

• Others, like Circle’s USDC ($0.9998), provide rewards to users who hold USDC on exchanges such as Coinbase and Kraken.

Why Banks See This as a Threat

The banking sector relies on interest-bearing deposits to fund lending. If stablecoin users can earn competitive yields outside the regulated banking system, deposits could flow out of banks and into crypto platforms.

According to the BPI and co-signers — including the American Bankers Association, Consumer Bankers Association, Independent Community Bankers of America, and the Financial Services Forum — this could:

• Reduce credit creation.

• Push interest rates higher.

• Increase borrowing costs for small businesses and households.

“Payment stablecoins should not pay interest the way highly regulated and supervised banks do on deposits or offer yield as money market funds do,” the letter stated.

A chart illustrating how money supply may “reshuffle” into stablecoins under the GENIUS Act. Source: US Treasury Department

Related: US Senate Advances GENIUS Stablecoin Bill Toward Full Debate

Stablecoins vs. Traditional Deposits

Unlike bank deposits or money market funds, stablecoins typically do not:

• Fund loans.

• Invest in securities to generate yield.

That difference, banks argue, justifies keeping yield restrictions in place to avoid destabilizing the credit system — especially during times of market stress.

Stablecoin Market Size and Growth Outlook

Currently, the stablecoin market is valued at $280.2 billion, a fraction of the $22 trillion U.S. money supply as of June (Federal Reserve data).

Market leaders:

• Tether (USDT): $165 billion market cap.

• USD Coin (USDC): $66.4 billion market cap.

Despite its smaller scale, the U.S. Treasury expects the stablecoin market to grow to $2 trillion by 2028, fueled by rising adoption and the GENIUS Act’s potential to strengthen U.S. dollar dominance in global finance.

Bottom Line

Banking groups see the GENIUS Act’s yield-related gap as a major risk to financial stability and credit availability.

The crypto industry, meanwhile, views yield programs as a core driver of adoption — setting up a likely battle in Washington over whether Congress will tighten restrictions or let stablecoin issuers keep this competitive edge.