A group of influential banking institutions in the United States, spearheaded by the Bank Policy Institute (BPI), is urging legislators to revise a significant loophole within the recently enacted GENIUS Act concerning stablecoins.
The BPI acknowledged in an official statement dated August 12th that the GENIUS Act prevents entities issuing stablecoins from directly providing interest or yields to those holding them.
However, they contend that the wording of the stablecoin legislation contains a crucial omission. The law doesn’t explicitly restrict cryptocurrency exchanges or their affiliated businesses from partnering with stablecoin issuers to indirectly offer yields.
According to the banking consortium, this legislative gap could instigate a substantial migration of funds from traditional banking institutions into the digital asset sphere. They predict potential outflows reaching as high as $6.6 trillion.
The BPI warns this shift could diminish lending capacity, drive up interest rates, and ultimately increase borrowing costs for both American businesses and individual consumers.
They further stated:
“To maintain the flow of credit to American businesses and families, and ensure the soundness of our critical financial markets, Congress must address the stablecoin interest payment loophole.”
Reactions from the Cryptocurrency Community
Prominent figures in the crypto sector have swiftly dismissed the banks’ concerns, labeling them as attempts to suppress competition.
Coinbase‘s Chief Legal Officer, Paul Grewal, characterized the expressed anxieties as exaggerated, emphasizing that the United States Congress has already deliberated upon and rejected similar proposals.
He stated:
“This isn’t a loophole, and you’re aware of it. A significant majority in both the House and Senate previously rejected your efforts to stifle competition. The President did too.”
Brian Armstrong, the CEO of Coinbase, shared similar perspectives. He suggested that the banks’ actions are primarily motivated by a desire to safeguard their profits rather than address genuine systemic risks.
Likewise, Jake Chervinsky, Chief Legal Officer at Variant Fund, observed that the banks’ lobbying efforts had failed, and their current apprehension is largely driven by self-interest.
Mikko Ohtamaa, co-founder of Trading Protocol, asserted that banks are resisting stablecoins because they pose a direct threat to traditional deposit-based business models.
According to Ohtamaa:
“Banks need to provide more attractive options for savings accounts and similar products. Such competition would benefit bank customers. The solution is simple: people won’t withdraw their funds from banks if the banks offer competitive deals.”