US financial experts caution that alternative stablecoin yield strategies may pose risks to domestic lending activities

Community Banks Seek Stronger Stablecoin Oversight

Local banks across the United States are urging lawmakers to address a gap in federal regulations regarding stablecoins. They are calling on senators to enhance supervision of yield-related loopholes that allow crypto companies to bypass current rules.

The Community Bankers Council of the American Bankers Association (ABA) recently sent a letter to Congress, highlighting concerns that some crypto firms are evading the GENIUS Act’s ban on stablecoin interest payments. According to the council, these companies are channeling rewards through associated exchanges, effectively sidestepping the law’s intent.

Over 200 leaders from community banks have voiced worries that, although the legislation blocks stablecoin issuers from offering interest—a measure designed to ensure deposits support loans for families and small businesses—some organizations are finding ways around this restriction through indirect incentives.

“Community banks are the foundation of local economies. Permitting interest or reward incentives on stablecoins could prompt customers to withdraw savings from banks, threatening the lending that drives growth in communities nationwide,” the letter stated.

The letter also referenced a U.S. Treasury report, warning that without clearer laws, as much as $6.6 trillion in deposits could be put at risk, potentially undermining access to credit across the country.

The ABA’s Community Bankers Council is urging Congress to make it explicit that the prohibition on interest payments should extend to affiliates and partners of stablecoin issuers as well.

“Anything less could endanger economic progress and the well-being of local communities,” the council concluded.

Since the GENIUS Act was enacted last July, the banking sector has repeatedly raised concerns. The ABA, Bank Policy Institute, and more than 50 state banking associations appealed to Congress in August, warning that “the restriction is easily bypassed because exchanges or other third parties can still offer rewards to stablecoin holders.”

Bank Groups Urge US Senate to Close Gaps in Country's New Stablecoin Law

Regulators Respond to Banking Sector Concerns

Jonathan Gould, who leads the Office of the Comptroller of the Currency, downplayed fears of a major outflow of deposits at the ABA’s Annual Convention last October. He assured attendees that any significant movement of funds would be quickly noticed and addressed, emphasizing that both top officials and industry groups would take action if necessary.

“Should there be a substantial withdrawal from the banking system, I would intervene,” Gould said, adding that “highly elected officials” and trade organizations would also step in.

Crypto Industry Pushes Back

Saravanan Pandian, CEO of the crypto exchange KoinBX, told Decrypt that the banking sector’s call to revisit the GENIUS Act reflects a traditional wariness toward digital assets. He cautioned, however, that overly strict regulations could drive activity into unregulated areas, creating challenges for all parties involved.

Pandian expressed optimism for a future where “banks and crypto platforms can work together and drive innovation through collaboration.”

OCC Chief Plays Down Stablecoin 'Bank Run' Fears

Nitesh Mishra, co-founder and CTO of the hedging platform ChaiDEX, told Decrypt that the $6.6 trillion risk figure is “somewhat exaggerated,” but acknowledged that banks have a point, as stablecoins can offer comparable returns without being subject to the same regulations as banks.

Mishra advocated for a “clear distinction between interest and rewards” and recommended that regulators implement strong reserve, liquidity, and transparency requirements, as well as activity-based licensing for nonbank issuers. This, he argued, would ensure that banks and stablecoin providers operate under similar standards without hindering innovation.

According to CoinGecko, the stablecoin market is valued at over $312 billion. However, users of the prediction market Myriad, which is owned by Decrypt’s parent company Dastan, estimate only a 3% probability that the market will surpass $360 billion by February.