US Banks Intensify Calls to Close Stablecoin Yield Loophole

Congress is under intense pressure from major US banking organizations to close a significant loophole in the recently passed GENIUS Act, which regulates payment stablecoins. Although the Act aims to prevent this practice and safeguard the banking system, they are concerned about a flaw that allows stablecoin issuers and associated cryptocurrency exchanges to offer yield or interest to token holders.

Why Bankers Are Concerned: The Risk to Economic Stability

Digital tokens based on the US dollar, known as stablecoins, have gained popularity as an alternative for transferring and storing value. On July 18, 2025, President Donald Trump signed the GENIUS Act, which forbids stablecoin issuers from directly providing holders with yield or interest. Exchanges and distribution partners are not, however, covered by the language. By offering these incentives through affiliated platforms, issuers and their partners may be able to circumvent the law, according to major banking associations such as the Bank Policy Institute, American Bankers Association, Consumer Bankers Association, Independent Community Bankers of America, and the Financial Services Forum.

To embed

There might be serious repercussions. A US Treasury report states that if stablecoin yield payments are allowed to continue unchecked, deposits from traditional banks could amount to up to $6.6 trillion. Bankers caution that this outflow would threaten the funding available to households and businesses, increase interest rates, and weaken the credit supply. Money market funds and regulated bank deposits, which use assets to finance loans and investments, are very different from stablecoin accounts.

Prospects and Regulatory Discussion

Although the stablecoin market only makes up a small portion of the US money supply today—roughly $280.2 billion as opposed to $22 trillion—it is expected to grow rapidly, reaching $2 trillion by 2028. As major exchanges like Coinbase and Kraken continue to give rewards to users who own stablecoins, the debate grew more heated as they claimed that these rewards do not qualify as “interest” under the law as it stands.

In order to prevent credit markets from being disrupted and economic growth from being impeded, banking advocates urge lawmakers to expand the GENIUS Act’s prohibition to include all entities offering stablecoin yield.

US banks are on the lookout for regulatory arbitrage that could jeopardize system stability as stablecoins continue to influence the financial landscape. In order to maintain credit flows and guarantee fair competition between established banks and new digital asset platforms, Congress is increasingly concentrating on closing the stablecoin yield loophole.

Read also: Aquanow and SGB Forge Global Crypto Banking Link