Industry groups: new crypto law has a ‘loophole’ that could cost banks

Banks are feigning surprise at yield on stablecoins. US banks are warning that the new GENIUS Act could trigger trillions in deposit outflows, since it bars stablecoin issuers from paying yield but allows crypto exchanges to keep offering rewards on third-party coins. They argue this risks undermining credit creation and monetary policy, while crypto groups counter that banks are trying to block competition and protect their own margins.

The FT reports that banking lobbies are pressing lawmakers hard to close what they call a regulatory “loophole,” warning of destabilising deposit flight, while crypto groups frame the campaign as a protectionist push to tilt the rules in Wall Street’s favour.

Yet Coinbase has paid USDC “rewards”since 2019; the GENIUS Act merely bans issuers from paying yield while leaving room for platforms and exchanges to share economics on third-party coins. That’s continuity in the GENIUS Act, not a loophole.

How big could outflows be? Treasury analysis cited by banks pegs the upper bound at $6.6tn depending on whether yield is available—think MMFs in the 1980s, but on faster rails. Treat it as a stress-case, not a base-case, but it explains the sudden lobbying blitz.