Banking Lobby Takes Aim at Stablecoins and GENIUS Act

The US banking lobby isn’t keen on interest-bearing stablecoins or their supposed challenge to financial systems — but it may be too late to amend these “loopholes” in the GENIUS Act.

The Banking Policy Institute (BPI), an advocacy group for the banking industry led by JPMorgan CEO Jamie Dimon, wrote a letter to Congress last week, arguing that stablecoins present a risk to existing credit systems. 

The BPI urged regulators to close supposed loopholes in the GENIUS Act, a new law regulating the stablecoin industry in the US, lest a shift from bank deposits increase lending costs and reduce loans to businesses. 

The bank lobby holds considerable sway in Washington, and while it may be able to complicate lawmaking, some argue that it’s delaying the inevitable: a future denominated in stablecoins. 

Banks say stablecoin interest is a threat

Prominent members in the crypto industry have long argued that stablecoin issuers should be allowed to offer users interest. In March, Coinbase CEO Brian Armstrong said interest-bearing stablecoins would give users more control over financial products. 

But according to Andrew Rossow, policy and public affairs attorney, the novelty of onchain interest means problems like solvency, liquidity and investor protection aren’t straightforward.

“Claims of ‘easy compliance’ overlook the complex realities of ensuring proper reserve backing, Anti-Money Laundering/Know Your Customer and prudential oversight simultaneously,” he told Cointelegraph.

The BPI’s letter addressed these concerns directly. It particularly called into question a so-called “loophole” in Sec. 4(a)(11) of GENIUS, which prohibits stablecoin issuers from paying “any form of interest or yield (whether in cash, tokens, or other consideration) solely in connection with the holding, use, or retention of such payment stablecoin.”

This section seems to ban yielding stablecoins, but according to Aaron Brogan, founder of crypto-focused law firm Brogan Law, “many believe that it does not ban deals between exchanges and issuers.”

The ability for other firms, like exchanges, to allow interest on stablecoins is based on factors other than “holding use or retention” as mentioned in GENIUS. The word “solely” in the GENIUS Act is a “powerful legal limiter, and it really does mean that if there is any other basis for the deals, they probably don’t qualify,” he told Cointelegraph.

So, while GENIUS is…