Major U.S. banking lobbies have voiced concerns regarding the GENIUS Act, relating to stablecoins and their impact on financial markets.
Issues with the GENIUS Act
Banking associations, including the Bank Policy Institute (BPI), have urged lawmakers to narrow the GENIUS Act in order to prevent stablecoin issuers and their partners from offering proxy interest or yields.
"In digital asset market structure legislation, it is important that the requirements in the GENIUS Act prohibiting the payment of interest and yield on stablecoins are not evaded," the letter to Congress stated.
Risks to the U.S. Credit System
The signatories, including the American Bankers Association and the Consumer Bankers Association, stated that stablecoins that bear yields are not comparable to bank deposits or money market funds. They warned that a sudden boom in stablecoin usage could increase the risk of deposit flight during financial turmoil.
This could decrease the amount of capital available for lending and result in rising interest rates, disrupting economic growth.
Yield Practices in Stablecoin Market
The yield offerings of stablecoins have emerged as a significant marketing strategy. Some issuers pay rewards directly, while others collaborate with exchanges that reward customers holding tokens on their platforms.
Banking executives emphasized that interest payments could attract deposits in a regulated banking system yet can destabilize the market when applied to stablecoins.
Hence, U.S. banking associations are strongly advocating for a reconsideration of the GENIUS Act provisions to mitigate potential adverse impacts on the financial system and credit market.
