A group of U.S. community bankers is lobbying Congress to amend the GENIUS Act to close a so-called “loophole” that allows yield-generating stablecoins to harm banks.
The American Bankers Association’s Community Bankers Council said in a letter to the Senate on Monday that it needs to strengthen the stablecoin regulation bill passed last year to prevent stablecoin issuances from offering returns to token holders through third parties.
“Some companies have exploited a perceived loophole allowing stablecoin issuances to indirectly fund payments to stablecoin holders through digital asset exchanges and other partners,” the group of more than 200 community bank executives said.
The GENIUS Act banned stablecoin issues from offering interest or returns to their holders, and agreed with the banking lobby that it could put these tokens in competition with bank savings accounts.
However, exchanges such as Coinbase and Kraken offer rewards to those who hold certain stablecoins on their platform, with the Community Bankers Council saying it was crucial to close this loophole as it affects the lending capacity of its banks.
“With this activity, the exception swallows the rule,” the group said. “If billions of people are excluded from community bank loans, small businesses, farmers, students and home buyers in cities like ours will suffer. »
Source: American Bankers Association
The council argued that exchanges and a “constellation of stablecoin affiliates are not designed to fill the lending gap” and cannot offer products insured by regulators.
He asked entrepreneurs to ban stablecoin issuance affiliates and partners from crypto market structure legislation currently under consideration in Congress.
Banks push for changes to the GENIUS Act
The board’s letter is the latest push by a bank advocacy group to change the GENIUS Act, with the Banking Policy Institute leading a cohort of groups pushing for action.
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The institute, led by JPMorgan CEO Jamie Dimon, wrote in August to call for the same loophole to be closed, arguing that it could trigger $6.6 trillion in deposit outflows from the traditional banking system.
Two major crypto advocacy groups, the Crypto Council for Innovation and the Blockchain Association, pushed back against banks in a letter to the Senate Banking Committee that same month, arguing that “payments stablecoins are not used to fund loans” and that the revisions would stifle innovation and consumer choice.
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