US banks lobby to amend GENIUS stablecoin Act, citing $6.6 trillion risk

The first official US stablecoin law, known as the GENIUS Act, is already facing pushback from major banking groups that argue some provisions could destabilise the traditional financial ￰0￱ in July 2024, the legislation was intended to bring clarity to the multibillion-dollar stablecoin industry while securing the country’s leadership in digital assets. However, banks warn that the restrictions on paying interest to stablecoin holders could divert vast sums away from deposits, threatening balance ￰1￱ 25 August, the Financial Times reported that banking groups have begun lobbying lawmakers to amend the rules before the impact becomes ￰2￱ Act prevents banks from offering yield The GENIUS Act introduced a framework for the issuance and oversight of stablecoins, but it also placed clear limits on how issuers can operate.

A key measure prohibits banks issuing their own stablecoins from paying any interest or yield to ￰3￱ rule was designed to maintain stability in the system and prevent speculative use of digital assets that are meant to mirror fiat ￰4￱ banks are restricted, crypto exchanges can still offer rewards to customers holding stablecoins issued by third parties, such as Circle’s USD Coin (USDC) or Tether (USDT). Bank representatives have labelled this a loophole, arguing it gives exchanges a competitive advantage and could influence customer ￰5￱ warn of $6.6 trillion outflow Banking groups have pointed to an April Treasury Department report to highlight the potential ￰6￱ report estimated that yield-bearing stablecoins could divert up to $6.6 trillion from the traditional banking system if consumers and businesses move deposits to exchanges promising higher ￰7￱ outflows, they argue, would not only erode banks’ ability to lend but could also create new vulnerabilities in the wider financial ￰8￱ groups are pressing lawmakers to reconsider these specific provisions, warning that unless the imbalance is addressed, the sector could face ￰9￱ lobbying efforts reflect growing concern within established finance that the rules could accelerate a migration of funds from banks to digital ￰10￱ industry rejects concerns Industry advocates have dismissed the banks’ position, saying the rules reflect an intentional balance between innovation and ￰11￱ Crypto Council for Innovation and the Blockchain Association have argued that the so-called loophole is not a flaw but a way to encourage ￰12￱ exchanges, they claim, would tilt the market in favour of banks while reducing consumer ￰13￱ in the sector, including Coinbase’s chief legal officer Paul Grewal, have pushed back against suggestions of destabilisation, maintaining that exchanges should retain the ability to reward users for holding ￰14￱ stress that the GENIUS Act is a milestone for regulatory clarity in the US, one that finally provides a framework for a rapidly growing asset class.