"The GENIUS Act was designed to keep stablecoins as payment tools rather than savings products. As a result, it bans issuers from paying interest or yield to stablecoin holders. Community banks argue that a loophole exists because exchanges and affiliated partners can still offer rewards on stablecoin balances, even if the issuer itself does not pay yield. Smaller banks are more concerned than large banks because they rely heavily on local deposits."
"the GENIUS Act of 2025 was intended to provide a federal framework for payment stablecoins. The law established strict standards for reserves and consumer protection. However, the banking sector soon warned Congress of a potential loophole in the stablecoin rules. This article examines what the GENIUS Act was designed to achieve and the regulatory gap that bankers are concerned about. It explains why community banks are more affected than larger institutions, outlines counterarguments from the crypto industry and explores the options available to Congress."
The GENIUS Act established a federal framework for payment stablecoins and imposed strict reserve and consumer-protection standards. The law prohibits stablecoin issuers from paying interest or yield, aiming to prevent stablecoins from functioning as savings products. Community banks warn that exchanges and affiliated platforms can still offer rewards on stablecoin balances, creating a practical loophole. Smaller banks express greater concern because deposit outflows would reduce local deposit funding and directly constrain lending to small businesses and households. Banks note that reward programs can be funded through platform revenues or affiliate arrangements, undermining the ban's effectiveness.
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