Bank trades take aim at stablecoin interest ‘loophole’

WASHINGTON — Groups representing bankers in Washington are pushing back against a provision in the stablecoin bill that they say opens up loopholes for stablecoins to offer de facto interest. 

Bank groups lobbied against rules allowing stablecoins to offer interest as lawmakers debated the GENIUS Act. While the law, signed by President Donald Trump in July, does generally prohibit stablecoin issuers from doing so, there are ways that others in the stablecoin ecosystem could offer interest-like products, such as yield, that consumers might find indistinguishable from the interest they could get on a traditional bank deposit. 

“Without an explicit prohibition applying to exchanges, which act as a distribution channel for stablecoin issuers or business affiliates, the requirements in the GENIUS Act can be easily evaded and undermined by allowing payment of interest indirectly to holders of stablecoins,” the groups, including the American Bankers Association, Bank Policy Institute, Consumer Bankers Association, Financial Services Association and Independent Community Bankers Association said. “These arrangements between stablecoin issuers and affiliates or exchanges, often jointly and explicitly marketed to consumers, will undermine the GENIUS Act’s prohibition regarding payment of interest and yield.” 

The issue brief is a step toward a more public campaign on upcoming market structure legislation than the bank trades waged during the stablecoin bill negotiations. While ABA and ICBA wrote some letters to lawmakers about the yield issue and other points of concern about the stablecoin bill, groups primarily representing the larger banking institutions, like Financial Services Forum and BPI, have been careful to not criticize the bills, which are priorities of the current administration. 

Whether stablecoins will be a net positive for the banking system has divided bankers. Some large institutions are optimistic about stablecoins and their place in the ecosystem. But while most banks want clear rules of the road when it comes to digital assets, some worry that stablecoins could disintermediate the banking system and draw away bank deposits as consumers rush toward higher yield, or another reward that approximates interest. 

“With affiliates of stablecoin issuers or exchanges still being able to pay interest on stablecoins, the risk of significant deposit flight is even greater,” the bank trades said. “Banks power the economy by turning deposits into loans. Incentivizing a shift from bank deposits and money market funds to stablecoins would end up increasing lending costs and reducing loans to businesses and consumer households.”