WASHINGTON—The American Bankers Association and dozens of state bankers associations are urging the U.S. Senate to close what they describe as a growing loophole in the GENIUS Act that allows cryptocurrency exchanges and affiliated platforms to offer yield, rewards, or interest on payment stablecoins, despite a statutory prohibition intended to prevent such practices.
In a Dec. 18 letter, the groups said the ban was designed to ensure stablecoins function strictly as payment instruments, not as savings or investment products..
The banking groups argue that some exchanges and digital platforms are exploiting ambiguity in the law by offering yield-like incentives funded through marketing or revenue-sharing arrangements with stablecoin issuers. Unlike banks, the letter notes, exchanges are not constrained by regulated lending activities, capital requirements, or supervision when offering these returns. As a result, rewards paid on stablecoins often function as a pass-through from issuers to token holders—precisely the outcome lawmakers sought to prevent, according to the letter..
Banks warned that allowing such practices could accelerate deposit flight from FDIC-insured accounts into exchange-based products that resemble interest-bearing accounts but lack equivalent consumer protections. That shift, they said, would reduce banks’ capacity to lend, driving up borrowing costs for small businesses, farmers, homebuyers, students, consumers, and local governments. Community and rural banks would be especially vulnerable, as exchanges do not recycle funds back into local economies in the same way banks do..
The letter also raised concerns about consumer risk, noting that exchanges may fund yield programs through higher-risk activities such as lending or rehypothecation of stablecoins, speculative trading, or other investment strategies that are not subject to bank-like oversight. When exchanges fail, customers are unsecured creditors with no federal safety net, the groups said. The bankers urged Congress to clarify that the GENIUS Act’s interest ban applies not only to stablecoin issuers but also to their partners and affiliates, arguing that such a move would restore regulatory parity, protect consumers, and align enforcement with legislative intent.
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