GENIUS Act Flaw Sparks Concerns Over Local Bank Liquidity and Stablecoin Competition

The American Bankers Association’s Community Bankers Council has identified a critical flaw in the GENIUS Act that could destabilize local lending markets. The legislation’s prohibition on stablecoin yields has inadvertently created a competitive imbalance between crypto assets and traditional bank deposits.

Banking advocates warn the provision may accelerate deposit flight during market stress, citing August research from the Bank Policy Institute showing reduced credit availability at regional institutions. The council’s Monday letter to Senate leadership emphasized how the loophole allows stablecoin issuers to circumvent interest restrictions through exchange-based mechanisms.

This regulatory gap mirrors broader tensions between decentralized finance and legacy banking systems—a friction point highlighted in recent congressional debates about central bank digital currencies. Representative Marjorie Taylor Greene’s December 2025 tweet underscores lingering conservative opposition to perceived CBDC backdoors in the legislation.