Community Banks Want GENIUS Act Yield ‘Loophole’ Closed

A group of US community bankers is pressuring Congress to change the GENIUS Act to close a supposed “loophole” that allows yield-generating stablecoins to undercut banks.

The American Bankers Association’s Community Bankers Council said in a on Monday to the Senate that it must tighten the stablecoin regulating bill passed last year to stop stablecoin issuers from offering yield to tokenholders through third parties.

“Some companies have exploited a perceived loophole allowing stablecoin issuers to indirectly fund payments to stablecoin holders through digital asset exchanges and other partners,” the group of more than 200 community bank leaders said.

The banned stablecoin issuers from offering interest or yield to holders, with lawmakers agreeing with the bank lobby that it could put such tokens in competition with bank savings accounts.

However, exchanges such as Coinbase and Kraken offer rewards to those who hold certain on their platform, with the Community Bankers Council arguing that was crucial as it impacts its banks’ lending abilities.

“With this activity, the exception swallows the rule,” the group said. “If billions are displaced from community bank lending, small businesses, farmers, students, and home buyers in towns like ours will suffer.”

The council argued that exchanges and a “constellation of stablecoin-affiliated companies are not designed to fill the lending gap” and couldn’t offer products insured by regulators.

It asked lawmakers to put a prohibition on affiliates and partners of stablecoin issuers offering interest in crypto market structure legislation that is currently through Congress.

The council’s letter is the latest push by a bank advocacy group to amend the GENIUS Act, with the Banking Policy Institute leading a cohort of groups that are pressuring lawmakers to take action.

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The institute, led by JPMorgan CEO Jamie Dimon, in August asking for the same claimed loophole to be closed, arguing it could trigger $6.6 trillion in deposit outflows from the traditional banking system.

Two major crypto advocacy groups, the Crypto Council for Innovation and the Blockchain Association, in a letter to the Senate Banking Committee that same month, arguing “payment stablecoins are not used to fund loans” and that the revisions would stifle innovation and consumer choice.

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