Lawmakers should use proposed market structure legislation to ensure that the Genius Act’s prohibition on interest applies to affiliates and partners of stablecoin issuers, the members of the American Bankers Association’s Community Bankers Council said today in a letter to members of the U.S. Senate.
The Genius Act bans payment stablecoin issuers from paying interest or yield on payment stablecoins, but some crypto companies claim the restriction can be bypassed when exchanges or other affiliates offer yield or rewards to stablecoin holders. ABA has called on Congress to reiterate the original intent of the Genius Act and close the loophole.
In the joint letter, the council members said the ban was put in place to ensure the stablecoin market can develop and mature without becoming a competitor to bank deposits “and disintermediating the community-based lending that fuels our economy.” They provided a state-by-state chart showing the potential deposit outflows to payment stablecoins if the loophole isn’t closed, and the resulting lost lending to households and businesses.
“With this activity, the exception swallows the rule. If billions are displaced from community bank lending, small businesses, farmers, students and home buyers in towns like ours will suffer,” they said. “Crypto exchanges and the constellation of stablecoin-affiliated companies are not designed to fill the lending gap, nor will they be able to offer FDIC-insured products, a point they omit from their aggressive advertising.”
