- GENIUS Act could let crypto firms offer interest via stablecoins.
- Banks call it a major regulatory gap.
- $6.6 trillion in deposits could leave banks.
Major U.S. banking groups are sounding the alarm over a potentially dangerous loophole in the newly passed GENIUS Act. According to the American Bankers Association and Bank Policy Institute, the legislation could allow crypto platforms to indirectly offer interest-bearing rewards on stablecoin holdings, a move that might threaten the traditional banking system.
The concern revolves around stablecoins—digital tokens tied to fiat currencies like the U.S. dollar. Under the current GENIUS Act structure, crypto exchanges could technically offer incentives or yield programs on these coins without registering as banks. This creates what banks see as a regulatory blind spot, giving crypto firms an unfair advantage.
$6.6 Trillion at Stake
Banking groups estimate that the loophole could prompt as much as $6.6 trillion in deposits to exit traditional banks. With consumers seeking higher returns, the ability of crypto platforms to offer interest-like rewards—even indirectly—could trigger a massive migration of funds out of regulated institutions.
This could destabilize the banking system, which depends on deposits to support loans and financial services. The banking lobby is now urging Congress to revise the GENIUS Act and close the loophole, ensuring that any activity resembling interest-bearing services is tightly regulated.
Crypto Innovation vs. Financial Stability
The debate highlights the ongoing struggle between crypto innovation and financial oversight. While the GENIUS Act aims to support digital finance, banks argue that poorly defined rules could lead to shadow banking, where crypto platforms operate outside traditional safeguards.
Lawmakers now face the challenge of updating the GENIUS Act without stifling innovation but also protecting the integrity of the financial system. As the crypto market evolves, regulatory clarity will be key to preventing systemic risks.
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