The news: A coalition of major US banks is pushing for reforms to the recently enacted GENIUS Act.
The banks are concerned that a loophole could give non-bank competitors financial advantages over more regulated traditional banks, per AInvest.
Why it matters: The primary concern for banks lies in a specific provision of the GENIUS Act: Section 16(d), which restricts stablecoin issuers from offering interest or yields directly. While this provision was intended to protect consumers and prevent stablecoins from becoming unregulated substitutes for bank deposits, the banks argue it's not enough. They claim that non-bank stablecoin issuers can easily bypass this rule by offering yields through affiliates, exchanges, or other partners. And according to PayPal’s website, banking groups aren’t wrong—PayPal says customers can earn up to 4% in “rewards” annually on PYUSD balances held on its platform.
This loophole also has significant implications for the broader financial industry. If stablecoins can offer a competitive yield, they could become a more attractive alternative to traditional savings accounts. This could trigger a deposit flight, with the Bank Policy Institute warning of a potential $6.6 trillion in deposit outflows. This could severely impact the ability of banks to make loans to consumers and businesses.
Ultimately, banks aren’t just concerned about stablecoin competition; they’re worried about the erosion of their fundamental role as intermediaries for credit creation.
Our take: Leaving a loophole like this open not only makes the competitive field uneven, but it also risks customers’ financial health. Unlike ordinary savings accounts, these stablecoin-related investments may carry a different level of risk, and the current regulation could leave customers exposed and without the protections they are accustomed to in traditional banking.
This is our immediate perspective. We’re actively developing this story throughout the day with more research and data from the EMARKETER database. Our in-depth analysis will be included in our client-only Briefings. Non-clients can click here to get a demo of our full platform and coverage.
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