The post US Banks Demand Closure of GENIUS Act’s Stablecoin Yield Loophole appeared on BitcoinEthereumNews.com.

The unbacked stablecoin earnings pose a threat to bank deposit bases. Yield ban by stablecoin affiliates is not present in law. There is a need to reform to avoid tightening of credit and increasing loans. A gap in the GENIUS Act is causing concern among banking consortia in the United States. This gap lets stablecoin issuers offer yields through affiliates. They caution that this has the potential to upset the normal flow of banks and credit. The Bank Policy Institute (BPI), along with other large US banking associations, urged Congress to become more stringent. They are worried that the possible introduction of yield-bearing stablecoins may push out as much as 6.6 trillion dollars worth of deposits out of banks. According to them, this poses a threat to lending and increases the borrowing cost. Stablecoin Yield: A Magnetic Pull on Deposits Stablecoins are not bank deposits or investment funds but are intended to be used in payments. Stablecoin issuers are not subject to the same stringent rules that banks are with regard to their operations. Notably, they do not finance lending or invest similarly to money market funds. Instead of paying direct interest, the GENIUS Act prohibits the issuers of stablecoins from doing so. However, it does not go as far as to prevent affiliates or exchanges from providing such rewards indirectly. That loophole could undermine the law’s intent. The Treasury Department puts the possibility of massive deposit flight with stablecoins at 3.5 billion dollars. This threatens to raise rates and strangle business and consumer credit. Devil in the Details: How Yields Get Out of the Ban: The law forbids issuers from paying interest or yield. However, exchanges and other affiliates can, nevertheless, reward stablecoin holders. Examples are the USDC tokens of Circle when they are on Coinbase and Kraken. These…

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Filed under: News - @ August 15, 2025 3:25 am