Banking Industry Challenges Stablecoin Interest Practices Under GENIUS Act

U.S. banking groups are urging Congress to address a provision in the recently enacted Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act, which they argue permits crypto exchanges to offer interest-like rewards on stablecoin holdings, potentially leading to significant deposit outflows from traditional banks.

The GENIUS Act, signed into law on July 18, 2025, prohibits stablecoin issuers from directly paying interest to holders. However, it does not explicitly prevent crypto exchanges or affiliated entities from offering rewards on these holdings. For instance, platforms like Coinbase and Kraken provide annual rewards of up to 4.1% and 5.5%, respectively, on stablecoin balances.

Banking industry representatives, including the American Bankers Association and the Bank Policy Institute, contend that this creates a regulatory loophole. They warn that such practices could incentivize consumers to move funds from traditional bank deposits to stablecoins, potentially leading to a $6.6 trillion reduction in bank deposits. This shift could undermine credit creation, resulting in higher interest rates and reduced loan availability for businesses and households.

In response, crypto industry advocates argue that the GENIUS Act's provisions were the result of extensive negotiations and that the current framework appropriately balances innovation with consumer protection. They assert that the banking sector's concerns overlook the comprehensive debate that shaped the legislation.

As the debate continues, the banking industry is advocating for amendments to the GENIUS Act to explicitly prohibit crypto exchanges from offering interest-like rewards on stablecoin holdings, aiming to prevent potential disruptions to the traditional financial system.