US Banking Groups Urge Congress to Close Stablecoin Yield Loophole in GENIUS Act

Major US banking associations are pressuring Congress to amend the GENIUS Act, claiming its current language allows stablecoin issuers to circumvent yield restrictions through third-party intermediaries. The Bank Policy Institute (BPI) warned in a 12 August 2025 letter that this loophole could destabilize the financial system, citing Treasury projections of potential $6.6 trillion outflows from traditional banks.

The GENIUS Act, signed into law by President TRUMP on 18 July 2025, explicitly prohibits stablecoin issuers from offering interest directly to holders. However, the legislation remains silent on yield distribution through affiliated entities—an omission banks argue undermines credit creation and could lead to higher interest rates.

This regulatory clash highlights growing tensions between legacy finance and digital asset innovators. Banking groups contend yield-bearing stablecoins pose systemic risks, while crypto advocates view the GENIUS Act's limitations as artificial constraints on market competition.