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Bankers Renew Their Plea to Close ‘Loophole’ in Stablecoin Law’s Ban on Interest Payments

By  |  January 8, 2026

Traditional banks continue to press their case for changes to the GENIUS Act six months after it was signed into law, despite making limited headway so far. On Monday, a group of more than 200 community bank leaders wrote to members of the U.S. Senate once again urging Congress to close what the bankers see as a loophole in the law that allows stablecoin issuers to circumvent the prohibition on paying interest on the digital currencies.

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    The letter appears timed to an expected Banking Committee vote next week on a crypto market-structure bill, which the banks may be hoping could provide a legislative vehicle

    “Under the law, stablecoin issuers cannot pay interest because allowing inducements like interest payments, yield, or rewards could incentivize customers to park their savings not in a bank, but in stablecoins,” the letter from the Community Bankers Council of the American Banking Association (ABA) said. “Congress recognized that this could significantly disrupt community lending because banks use those deposits to provide individuals and businesses with the loans they need to get a home or expand a local business.”

    Despite that prohibition, the letter claimed, “some companies have exploited a perceived loophole allowing stablecoin issuers to indirectly fund payments to stablecoin holders through digital asset exchanges and other partners.”

    The letter appears timed to an expected Banking Committee vote next week on a crypto market-structure bill, which could potentially serve as a legislative vehicle for amending the GENIUS Act.

    This week’s letter was not the first time bankers have raised the issue, however. In August a group of five banking associations, including ABA, wrote to the chair and ranking member of the Senate Banking Committee raising concerns over indirect payments to stablecoin holders, such as by partnering with exchanges that are not covered by the prohibition on offering incentives to coin holders to issue the coins, being used to effectively circumvent the law.

    Read more: Fed’s Bowman Pushes New Rules for Banks and Stablecoin Issuers

    “These arrangements between stablecoin issuers and affiliates or exchanges, often jointly and explicitly marketed to consumers, will undermine the GENIUS Act’s prohibition regarding payment of interest and yield” the earlier letter said. “The result will be greater deposit flight risk, especially in times of stress, that will undermine credit creation throughout the economy.”

    Crypto groups responded with their own letter to the Banking Committee in August arguing changes to the GENIUS Act would inhibit the financial innovation it seeks to spur.

    According to a study by Cornerstone Advisors released in July, traditional financial institutions experienced $2.15 trillion in deposit flight to fintech rivals over the previous five years. Of the funds lost specifically by community banks and credit unions, 65% came from Gen X and Boomer customers.

    All those losses came before the GENIUS Act was enacted, however, suggesting any deposit flight since then cannot be laid exclusively at stablecoins’ door.

    Bankers nonetheless continue to target the digital currencies. “If billions are displaced from community bank lending, small businesses, farmers, students, and home buyers in towns like ours will suffer,” the ABA said in this week’s letter. “Crypto exchanges and the constellation of stablecoin-affiliated companies are not designed to fill the lending gap, nor will they be able to offer FDIC-insured products.

    “It is time to stand up for community banks and small businesses by making clear in market structure legislation that the prohibition on interest applies to affiliates and partners of stablecoin issuers,” the letter added. “Anything less will put economic growth and local communities at risk.”