U.S. community banks collectively call for amendments to the GENIUS Act: Stablecoins "earning interest" threaten the TradFi system

The American Community Bankers Alliance recently publicly called on Congress to amend the GENIUS Act, pointing out the current stablecoin regulation’s risk of being exploited. Yield-bearing stablecoins are indirectly competing with traditional bank deposits, sparking strong concerns within the banking system about capital outflows.

The Community Bankers Committee of the American Bankers Association has written to the Senate, urging lawmakers to further tighten the regulatory boundaries for stablecoins. Representing over 200 community bank executives, the committee believes that although some stablecoin issuers do not directly pay interest to holders, they indirectly offer rewards linked to stablecoin holdings through cryptocurrency exchanges and partner platforms, effectively creating “deposit-like yields.”

According to the original design of the GENIUS Act, stablecoin issuers are explicitly prohibited from paying interest or yields. The core purpose is to prevent stablecoins from siphoning funds from federally insured bank savings accounts. Community bankers point out that several large U.S. cryptocurrency exchanges are currently awarding rewards to stablecoin users, which has weakened the effectiveness of this regulation.

Banking industry warnings suggest that this model could lead to ongoing declines in local bank deposits, thereby weakening their ability to lend to small businesses, farmers, students, and homebuyers. Community bankers emphasize that crypto platforms neither have banking lending functions nor provide FDIC insurance, yet they are substantively participating in “deposit competition.”

Therefore, the committee urges Congress to clarify in ongoing legislation on the cryptocurrency market structure that the yield prohibition in the GENIUS Act should be extended to affiliates and partners of stablecoin issuers to close regulatory loopholes. Previously, the Bank Policy Institute led by Jamie Dimon also warned that if stablecoin incentives are left unrestricted, it could trigger a bank deposit outflow totaling trillions of dollars.

However, the crypto industry strongly rebutted this. The Blockchain Association and the Cryptocurrency Innovation Council argue that stablecoins are not used for traditional credit expansion, and excessive regulation would stifle innovation and limit consumer choice. Major U.S. centralized exchanges (CEX) explicitly stated that the GENIUS Act prohibits issuer interest payments, not rewards or loyalty programs offered by exchanges. Confusing the two would go against the legislative intent.

The ongoing battle over stablecoin yields, bank deposit safety, and financial innovation is becoming the core point of conflict in the next phase of U.S. crypto regulation.