US Community Bankers Demand GENIUS Act Revisions Amid Stablecoin Yield Fears

Small banks are pushing back—hard. The proposed GENIUS Act, designed to bring clarity to stablecoin issuance, is facing unexpected resistance from community bankers who see a direct threat to their deposit base.

The Yield That's Stealing Their Lunch

It's not about the technology; it's about the money. Bankers argue that high-yield stablecoin products could siphon off customer deposits overnight. Why keep cash in a savings account earning a paltry percentage when a digital dollar can earn multiples more? They're lobbying for provisions that would either cap yields or force stablecoin issuers to partner with traditional banks—a classic move to regulate competition into submission.

Innovation Versus Incumbency

The clash exposes a fundamental tension in modern finance. Crypto advocates see a path to more efficient, accessible financial services. Bankers see an unlevel playing field where they bear regulatory costs their new competitors don't. The GENIUS Act, meant to foster innovation, has become a battleground for the future of where—and with whom—Americans park their money.

The Washington Grind

Expect amendments, backroom deals, and plenty of lobbying dollars spent. The community banking lobby retains deep, if quiet, influence on Capitol Hill. Their argument—protecting financial stability and Main Street—often resonates more than tech-forward pitches about efficiency.

So the race is on: can decentralized finance disrupt the system faster than the system can write rules to contain it? One banker's 'prudent safeguard' is another's protectionist racket—the age-old finance dance of dressing self-interest in the cloak of public good.

Community Bankers Say Stablecoin Rewards Undermine GENIUS Act Intent

“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 council, which represents more than 200 community bank leaders, wrote.

The GENIUS Act explicitly bars stablecoin issuers from paying interest or yield, reflecting lawmakers’ concerns that yield-bearing tokens could draw funds away from insured bank savings accounts.

Community bankers argue that the intent of that provision is being undermined by crypto platforms that offer rewards tied to stablecoin holdings.

Major exchanges such as Coinbase and Kraken provide incentives for users who hold certain stablecoins on their platforms, even if the issuers themselves do not pay yield directly.

According to the council, that dynamic risks siphoning deposits from local banks and weakening their ability to lend.

Community banks are urging lawmakers to close a loophole in the GENIUS Act that could allow yield-bearing stablecoins.

They warn the gap could drain deposits from local banks and reduce lending to small businesses and households.

Source: The Block

“With this activity, the exception swallows the rule,” the group said, warning that large-scale deposit outflows could reduce credit availability for small businesses, farmers, students, and homebuyers in local communities.

The bankers also argued that exchanges and affiliated crypto firms are not equipped to replace banks as lenders and do not offer products backed by federal deposit insurance.

As a result, the council asked lawmakers to extend the GENIUS Act’s yield ban to affiliates and partners of stablecoin issuers through pending crypto market structure legislation.

The letter adds to growing pressure from banking groups. The Banking Policy Institute, led by JPMorgan chief executive Jamie Dimon, raised similar concerns last year, warning that unchecked stablecoin incentives could drive trillions of dollars out of the traditional banking system.

Crypto Groups Reject Bank Claims, Warn Against Tighter Stablecoin Rules

Crypto industry groups have pushed back. The Crypto Council for Innovation and the Blockchain Association previously told lawmakers that payment stablecoins are not used to fund loans and argued that tighter rules WOULD curb innovation and limit consumer choice.

In November, Coinbase Global also called on the US Treasury Department to ensure its upcoming rules for the GENIUS Act remain faithful to Congress’s original intent.

The exchange warned that excessive regulation could stifle innovation and undermine US leadership in crypto.

It also clarified that the GENIUS Act’s interest-payment prohibition applies only to stablecoin issuers, not to exchanges or intermediaries that offer loyalty or rewards programs.

“Treating third‐party rewards or loyalty programs as prohibited ‘interest’ would rewrite Congress’s carefully drawn lines and conflict with the statute’s purpose,” Coinbase said.