Crypto Groups Push Back Against Bankers’ Call for Changes to GENIUS Act

On Tuesday, the heads of the Crypto Council for Innovation and the Blockchain Association wrote to the chairs and ranking members of the Senate and House banking committees expressing “strong opposition” to a letter sent to the committees by several banking associations last week.

The bankers’ letter claimed that tacit agreements between stablecoin issuers and coin exchanges that enable indirect payments of interest or yield on payment stablecoin deposits, despite the law’s prohibition on such payments by issuers, could lead to significant deposit outflows from banks and undermine liquidity in the traditional financial system. It sought an “explicit ban” on indirect payments through exchanges or issuer affiliates.

The letter from the crypto associations said such a prohibition would “tilt the playing field in favor of legacy institutions, particularly larger banks.”

The letter challenges the claim that the payment of interest on stablecoins would cause significant outflows of deposits from traditional banks or undermine liquidity in the traditional financial sector. It notes that stablecoin issuers must maintain a one-for-one reserve in the form of cash or other high-liquidity assets such as short-term Treasuries and that “the overwhelming majority of stablecoin reserves remain in the traditional financial system.”

Related: Bank Groups Urge Congress to Close ‘Loopholes’ in GENIUS Act

The letter also opposes any repeal of Section 16 (d) of the GENIUS Act that allows subsidiaries of state-chartered institutions to conduct money transmissions across state lines in support of lawful stablecoin activities. The provision enables a stablecoin issuer to redeem coins for fiat money to a holder in another state without first seeking a license.

“Without it,” the letter warns, “states could effectively veto the stablecoin redemption rights of out-of-state holders,” leading to the balkanized, fragmented regulatory system the law seeks to avoid.

“Allowing responsible, robustly regulated platforms to share benefits with customers is not a loophole—it is a feature that promotes financial inclusion, fosters innovation and ensures American leadership in the next generation of payments,” the letter concludes. “This balance, between consumer protection and innovation, has been thoughtfully struck by a shrewd and thoughtful bipartisan collation of legislators in both the House and the Senate. Altering the provisions already enshrined in the GENIUS Act would be unwise and would fundamentally weaken [the] legislative framework.”