The American Bankers Association today joined the Bank Policy Institute and three other associations in urging lawmakers to close a legal loophole that may allow for the payment of interest and yield on stablecoins despite a recent prohibition against the practice.
The GENIUS Act, which was signed into law last month, creates a regulatory framework for payment stablecoins. Among its provisions was a prohibition on stablecoin issuers offering interest, yield, or other financial and non-financial rewards to stablecoin holders. However, in a joint letter, the associations warn that without an explicit prohibition applying to cryptocurrency exchanges, “the requirements in the GENIUS Act can be easily evaded and undermined by allowing payment of interest indirectly to holders of stablecoins.”
“These arrangements between stablecoin issuers and affiliates or exchanges, often jointly and explicitly marketed to consumers, will undermine the GENIUS Act’s prohibition regarding payment of interest and yield,” the associations said. “The result will be greater deposit flight risk, especially in times of stress, that will undermine credit creation throughout the economy. The corresponding reduction in credit supply means higher interest rates, fewer loans and increased costs for Main Street businesses and households.”
