US Banking Groups Warn of Stablecoin Yield ‘Loophole’ Under GENIUS Act

Several leading US banking associations have urged Congress to close what they describe as a loophole in the recently enacted GENIUS Act. This new motion is led by the Bank Policy Institute (BPI). In a letter sent on Tuesday, the groups warned that the gap in the law could indirectly allow stablecoin issuers and their affiliates to pay interest or yield to holders, something explicitly prohibited for the issuers themselves.

The GENIUS Act, signed into law by President Donald Trump on July 18, bans stablecoin issuers from offering interest to token holders. However, according to BPI and co-signatories, including the American Bankers Association, Consumer Bankers Association, Independent Community Bankers of America, and the Financial Services Forum, the law does not extend this restriction to crypto exchanges or affiliated entities. They argue that this omission could enable issuers to sidestep the ban by partnering with such platforms to offer yield-bearing products.

The banking groups emphasized that offering yield is a major marketing tool for stablecoin adoption. While some issuers build yield directly into their products, others, like Circle’s USDC, are rewarded on partner exchanges such as Coinbase and Kraken. They warned that if yield-bearing stablecoins become widely adopted, it could drain as much as $6.6 trillion from traditional bank deposits, funds essential for financing loans to American businesses and households.

Stablecoins differ fundamentally from bank deposits and money market funds. The letter noted that they do not use deposits to fund loans or invest in securities. Allowing them to pay interest could destabilize the credit system, potentially leading to higher interest rates, fewer loans, and increased borrowing costs for Main Street.

Currently, the global stablecoin market has a capitalization of $280.2 billion, which is small compared to the US dollar money supply of $22 trillion as of June, according to Federal Reserve data. The market is dominated by Tether (USDT) and USDC by Circle, valued at $165 billion and $66.4 billion respectively.

Despite its size, the Treasury projects the stablecoin market could reach $2 trillion by 2028, a growth trajectory that regulators say could amplify systemic risks if yield-bearing products remain unchecked. While the GENIUS Act is seen by many crypto analysts as a tool to strengthen US dollar dominance globally, banking advocates stress that without closing the loophole, the legislation could inadvertently weaken America’s own banking and credit systems.