A powerful coalition of U.S. community bankers is turning up the heat on Congress, demanding urgent revisions to the GENIUS Act. The group argues that a specific “loophole” currently allows stablecoin issuers to bypass federal regulations and compete directly with traditional savings accounts by offering interest through third-party platforms. In a letter sent to the Senate on Monday, the Community Bankers Council—representing over 200 industry leaders—warned that this practice threatens the very foundation of local lending.
How the Stablecoin Yield Loophole Impacts Local Lending
The core of the issue lies in how digital asset exchanges like Coinbase and Kraken interact with stablecoin issuers. While the GENIUS Act explicitly bans issuers from offering interest directly to token holders, these third-party exchanges often provide “rewards” or yields to users who hold specific stablecoins on their platforms. The Community Bankers Council argues that this is a distinction without a difference, claiming that issuers are indirectly funding these payments to lure depositors away from traditional banks.
According to the council, this shift in capital isn’t just a headache for bank executives; it’s a crisis for Main Street. When deposits leave community banks for digital wallets, the pool of capital available for small business loans, mortgages, and agricultural credit shrinks. “If billions are displaced from community bank lending, small businesses, farmers, students, and home buyers in towns like ours will suffer,” the group stated. Unlike banks, these “stablecoin-affiliated companies” do not provide the same regulated lending products or FDIC-insured security that local communities rely on.
The $6.6 Trillion Battle Between Big Banks and Big Crypto
This latest push from community bankers adds significant weight to a campaign already backed by some of the biggest names in finance. The Banking Policy Institute, led by JPMorgan CEO Jamie Dimon, has previously warned that if this loophole isn’t closed, the traditional banking system could see a staggering $6.6 trillion in deposit outflows. The banking lobby is now urging lawmakers to include a strict prohibition on interest-bearing partnerships in the crypto market structure legislation currently moving through Congress.
However, the crypto industry isn’t backing down without a fight. Major advocacy groups like the Blockchain Association and the Crypto Council for Innovation have pushed back, telling the Senate Banking Committee that stablecoins and traditional bank deposits serve entirely different functions. They argue that payment stablecoins are not used to fund loans and that the banks’ proposed changes would essentially stifle financial innovation and limit consumer choice. As the GENIUS Act faces its first major test, the result will likely determine whether stablecoins remain a niche digital tool or become a direct, high-yield competitor to the neighborhood bank.
