Major US banks are warning that loopholes in the GENIUS Act 2025 could cause deposits to leave the banking system, with risks reaching up to $6.6 trillion if stablecoins are "transformed" into high-interest savings products through affiliated companies and crypto exchanges.
This warning was issued in a letter to Congress on January 6th, when banking groups argued that the regulation prohibiting interest payments to stablecoin issuers was being circumvented, creating a "shadow banking" model in the cryptocurrency market and undermining traditional credit channels.
- The banking group says the GENIUS Act 2025 has loopholes that allow crypto exchanges/affiliated companies to pay yields similar to high-interest savings accounts.
- The risk raised is that deposits could shift away from banks, affecting the supply of credit to individuals and businesses.
- Stablecoins have reached a market Capital of $317.8 billion; if the "yield" mechanism is blocked, demand could revert to Vai as a payment method.
Banks warn that a loophole in the GENIUS Act could drain $6.6 trillion from the system.
Banking institutions say loopholes in the GENIUS Act could encourage a shift of deposits to yield-generating stablecoins, putting liquidation pressure on banks and posing systemic risks; the level of risk is estimated at $6.6 trillion.
In a letter to Congress dated January 6th, the Bank Policy Institute (BPI) and a coalition of banking associations argued that the new regulations on stablecoins are creating an enforcement loophole.
The central concern of the warning is that crypto exchanges or affiliated companies could operate like "shadow banks" by offering high yields/rewards, directly competing with bank deposits without being subject to the same regulatory framework.
The GENIUS Act prohibits interest payments, but yields may be available through affiliated companies.
The GENIUS Act prohibits stablecoin issuers from paying interest, but banks say this regulation can be circumvented through a linked account model, allowing users to still receive higher yields than regular savings accounts.
According to the banking group's argument, if stablecoins shift from payment instruments to yield-generating "money-housing," the market motivation will no longer be transactional utility but profit maximization, thereby triggering a wave of deposit withdrawals.
BPI warns that this shift will not only weaken bank balance sheets, but could also stifle credit channels for the real economy, making home loans, business loans, and agricultural financing more difficult to access.
Controversy surrounding the GENIUS Act has been ongoing since the debate in the House of Representatives.
During the debates leading up to its passage (July 2025), the GENIUS Act faced criticism from some lawmakers for the risk of creating a "backdoor" for CBDCs, highlighting that regulatory tensions are not new.
During the debates when the bill was introduced in July 2025, Representative Marjorie Taylor Greene expressed opposition for reasons different from the banking system, focusing on the risks associated with CBDCs.
“Back in July, I voted NO to the GENIUS Act because it contained a ‘backdoor’ leading to central bank digital currencies (CBDCs).”
– Marjorie Taylor Greene, U.S. Congresswoman
"I support crypto, but I would never support giving the government the ability to completely take away your control over your money and how you buy and sell it."
– Marjorie Taylor Greene, U.S. Congresswoman
To date, the "loopholes" mentioned by many parties are still considered to have not been thoroughly addressed in practice and in the definition of their scope of application.
The proposed solution is a comprehensive management framework for traditional and digital payments.
One proposed approach is to build a broader regulatory framework, not just focused on stablecoins, to balance competition between stablecoins and other payment mechanisms.
In his analysis, Douglas Holtz-Eakin, President of the American Action Forum, commented that the GENIUS Act-style approach may be unfocused because it targets only stablecoins.
"The problem with the GENIUS Act-style approach is that it focuses solely on stablecoins, failing to address the issue of balancing competition between stablecoins and other payment mechanisms."
– Douglas Holtz-Eakin, President of the American Action Forum
"A better approach would be comprehensive regulation, for example a 'Clarity Act,' to put all traditional and digital payments and assets on the same playing field and let the market regulate itself."
– Douglas Holtz-Eakin, President of the American Action Forum
Stablecoin Capital reached $317.8 billion, with USDT and USDC leading the way.
The stablecoin market has grown to $317.8 billion, with USDT and USDC dominating; this makes the debate about "yields" sensitive as it can directly impact the incentive to hold stablecoins.
Market data shows that the total market Capital of stablecoins reached $317.8 billion . USDT is around $187 billion, while USDC has grown by 73% in the past 12 months, reaching $75 billion.
As stablecoins continue to expand, the “yield gap” is XEM as a driving force behind their adoption. However, if Congress blocks crypto exchanges from offering interest/bonuses, stablecoins could lose their appeal as a high-yield savings option.
A tightening scenario could force stablecoins back to their original Vai : a means of payment and money transfer. The big question then would be whether the $317.8 billion market capitalization would be retained if the rewards disappeared.
Conclusion: Stablecoin vulnerabilities are being viewed as systemic risks.
Banks view the stablecoin vulnerability not as a technical flaw, but as a systemic risk, and Congress needs to decide between closing the vulnerability or accepting the existence of "shadow banks" in crypto.
- The stablecoin vulnerability has escalated from a supervisory issue to a warning of systemic risk that banks can hardly ignore.
- With $317.8 billion currently held in stablecoins, the decision to ban yields/rewards will directly impact holding behavior and the role of stablecoins.
Frequently Asked Questions
What does the GENIUS Act 2025 prohibit regarding stablecoins?
The GENIUS Act prohibits stablecoin issuers from paying interest. The controversy lies in the fact that yields can be generated indirectly through crypto exchanges or affiliated companies, leaving users still receiving rewards similar to interest.
Why do banks say stablecoins could attract deposits?
If stablecoins are pegged with high yields/rewards, users may transfer money from their bank accounts to stablecoins to seek better returns, thereby reducing deposits and impacting the bank's lending capacity.
What is the current Capital capitalization of stablecoins, and who is leading the way?
The total market Capital of stablecoins is stated to be $317.8 billion. USDT is approximately $187 billion and USDC reached $75 billion after a 73% growth in 12 months.
What could happen if Congress blocked yields on stablecoins?
Stablecoins may become less attractive as a “high-yield savings” option and revert to their primary Vai as payments/money transfers. The market will then have to assess XEM the current market Capital size can be sustained without the rewards.
