Trillions of dollars for community lending could be lost if lawmakers fail to close a loophole crypto firms could use to bypass the Genius Act’s prohibition on paying interest or yield on payment stablecoins, the American Bankers Association and seven banking and credit union associations warned in a joint letter to senators.
The Senate Banking Committee is scheduled to vote on Thursday on a market structure bill that would create a regulatory framework for a wide range of digital assets. In their letter, the associations urged senators to use the legislation to close the loophole.
“The Treasury Department estimates that $6.6 trillion in bank deposits could be at risk if these incentives persist, and it is likely that demand deposits held by credit unions would be similarly vulnerable to shifts in the money supply,” the associations said. “Customers could lose access to the credit these deposits represent and the protections that attach to bank and credit union deposits, including FDIC and NCUA insurance and the prudential safeguards of banking and credit union supervision.”
Congress took an important step by prohibiting interest payments on stablecoins in the Genius Act, the associations said.
“However, recent market behavior demonstrates that this safeguard is being eroded through indirect arrangements with exchanges and related firms,” they said. “Without clear statutory language extending this prohibition in market structure legislation now being advanced, trillions will be displaced from community lending, and the financial fabric of towns and neighborhoods nationwide will be weakened.”
