- US banks push for lawmakers to double down on stablecoin yield restrictions captured in the GENIUS Act, in the Market Structure Legislation.
- Banking groups fear that intermediaries like crypto exchanges could bypass the yield restrictions if the Market Structure bill fails to codify more stringent controls.
- Banks cite deposit flight risks, which could undermine credit provision and increase interest rates for local businesses and households.
As Congress warms up to propose a comprehensive framework for the Digital Asset Market Structure Legislation, American banks unanimously push to include a definitive stablecoin yield restriction in the bill. Although the GENIUS ACT prohibits any form of yield or incentives from issuers on stablecoins, the banking lobby is concerned intermediaries like exchanges could bypass the restriction and press Congress to tighten the Market Structure bill in that regard.
Congress Urged To Block All Stablecoin Interest Loopholes
In a statement released in August, the Bank Policy Institute, a nonpartisan public policy organization representing top banks in the US, emphasized the need to close potential loopholes in the GENIUS ACT—the first comprehensive US stablecoin bill—which could hinder banks’ ability to offer affordable credit to families and businesses.
According to the banking group, payment stablecoins should not and “do not substitute for bank deposits” and other traditional financial instruments, and by extension, do not have the same regulatory premises.
“These distinctions are why payment stablecoins should not pay interest the way highly regulated and supervised banks do on deposits or offer yield as money market funds do,” said the BPA.
Wall Street stresses how any allowance for payment stablecoins potentially puts a stumbling block on banking deposits, which constitute a major source of funding for banks to fund credit. They insist that these stablecoins do not fund loans and lack the comprehensive regulation applied to traditional finance.
Incentivizing Payment Stablecoins Potentially Undermines Bank Credit Offerings
Based on an April Treasury report quoted by the BPA, it is estimated that “stablecoins could lead to as much as $6.6 trillion in deposit outflows” if they are allowed to provide yield and interest. As it stands, Wall Street insists that the GENIUS ACT does not fully guard against capital flight since exchanges and other affiliates of stablecoin issuers are still able to pay interest on stablecoins.
To curb potential drawbacks on the banking system, the BPI advocates for lawmakers to include an explicit prohibition in the Market Structure Legislation precluding exchanges from facilitating any interest or yield offerings on payment stablecoins.
“Congress must protect the flow of credit to American businesses and families and the stability of the most important financial market by closing the stablecoin payment of interest loophole.”
Earlier this month, Senate Democrats highlighted some key considerations for digital asset market structure. These propositions include the addition of anti-money laundering provisions and the ban on elected officials interfering in digital assets.
These propositions, including Wall Street’s push to establish yield farming restrictions on exchanges and intermediaries, would constitute key elements of a major debate between Republicans and Democrats once legislative proceedings on the bill gain momentum.
