Community Bankers Want GENIUS Act Loophole Closed

Community bank leaders want the U.S. Senate to close a regulatory loophole they say is being used by some crypto companies. 

Banks contend that some stablecoin companies are using affiliates and partners to step around a GENIUS Act provision that prohibits them from making interest payments or yields to their customers. But crypto companies object, calling such a move protectionism. 

More than 200 community bankers signed a letter to the Senate calling for the loophole to be closed in early January. 

Regulation Under the GENIUS Act

The GENIUS Act was passed on July 18, 2025, to regulate the stablecoin market. 

Under this law, stablecoin issuers may not pay interest to customers because interest payments, rewards or a yield could encourage customers to deposit their savings in stablecoins and not in a bank, according to community bank leaders.

The Jan. 5 letter was addressed to the U.S. Senate by the American Bankers Association’s Community Bankers Council, which represents community banks in 50 states. 

How This Provision Protects Banks

Without this prohibition regarding interest payments and yields for stablecoin issuers, the U.S. Treasury has estimated that $6.6 trillion in bank deposits are at risk, according to the Community Bankers Council’s letter.

The Loophole Banks Object To

Some stablecoin companies are using indirect payments through affiliates and partners to get around the prohibition of interest payments set down in the GENIUS Act, according to the letter. 

In its letter to the Senate, the Community Bankers Council points out that crypto exchanges and their affiliated companies are not equipped to fill a lending gap, and they don’t offer FDIC-insured banking products. 

The banks want the GENIUS Act’s prohibition on interest to apply to affiliates and partners of stablecoin issuers.

View From the Federal Reserve

As community bankers entreat lawmakers to close this loophole, the Federal Reserve has signaled that more legislation may be needed regarding stablecoin.

Michelle Bowman, the Fed Vice Chair of Supervision at the Federal Reserve called for a detailed regulation of stablecoin at a banking conference in Madrid in November.

Push Back From Crypto Firms

More than 125 crypto firms are fighting back against bank lobbying efforts. These firms see bank efforts to close the loophole in the GENIUS Act as protectionism, according to BeInCrypto, an independent news organization that covers digital assets. 

In December, the crypto coalition wrote a letter to the U.S. Senate Banking Committee urging them to reject efforts to expand the GENIUS Act, BeInCrypto reported. The fight is likely to continue.

“I think there’s a lot of energy, a lot of excitement around stablecoin. Feels very much like real time payments two years ago. Lots of vibes, lots of excitement, lots of energy, lots of board members telling executives they have to have a stablecoin strategy for 2026,” said Tony DeSanctis, senior director at Cornerstone Advisors.  

The Bottom Line

The GENIUS Act took aim at regulating the stablecoin market. In a key provision, it prevented stablecoin issuers from offering interest payments and yields to their customers since doing so would be a threat to banks.  

But community bankers have spotted a loophole they say some stablecoin companies are exploiting. These companies are using partners or affiliates to sidestep the provision that prevents them from offering interest payments to customers. 

Community bankers want lawmakers to close this loophole and prevent stablecoin affiliates or partners from making interest payments or yields to stablecoin customers. Crypto firms are against an expansion to the GENIUS Act.