U.S. community banks call for revisions to the GENIUS Act, demanding a closure of the stablecoin "yield loophole."

American community banks are pushing Congress to amend the GENIUS Act to close what they believe is a regulatory loophole that allows stablecoins to effectively pay interest.

The Community Bank Council of the American Bankers Association wrote to the Senate this week, stating that some stablecoin issuers are indirectly providing returns to token holders through third parties such as digital asset exchanges, undermining the bill's prohibition on interest payments for stablecoins. The GENIUS Act previously explicitly prohibited stablecoin issuers from directly offering interest or returns to holders to avoid competition with bank savings accounts. The Community Bank Council pointed out that some platforms, including Coinbase and Kraken, still offer reward mechanisms to specific stablecoin holders on their platforms, which could impact the deposit and lending capabilities of community banks. The organization is calling for a clear prohibition in the pending cryptocurrency market structure legislation against affiliates or partners of stablecoin issuers providing returns to token holders. Reports also mentioned that the Banking Policy Institute had previously made similar requests, arguing that such practices could lead to deposit outflows from the traditional banking system. Meanwhile, organizations in the crypto industry, such as the Crypto Council for Innovation and the Blockchain Association, expressed opposition to the Senate, stating that payment stablecoins are not intended for lending, and further tightening of regulations could stifle innovation and consumer choice.