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Urgent Call for Legislative Action: US Banking Groups Highlight Stablecoin Law Flaws

A coalition of major U.S. banking organizations, including the American Bankers Association, is urging Congress to address critical loopholes in the newly enacted GENIUS Act related to stablecoin regulations.

These banking groups warn that certain provisions allow stablecoin issuers to bypass the law's restrictions on paying interest by utilizing affiliated platforms like exchanges.

They estimate that this could lead to a staggering $6.6 trillion in deposit outflows from banks, negatively impacting credit availability and increasing loan costs for consumers and businesses.

Currently valued at approximately $280 billion, the stablecoin market is expected to grow significantly, further emphasizing the need for regulatory clarity in this space.

The GENIUS Act, passed in July, prohibits direct interest payments by stablecoin issuers, but fails to extend this prohibition to associated entities, creating an ambiguity that could disrupt the financial system.

Banking leaders argue that allowing yield-bearing stablecoins would create unfair competition against traditional banking reserves, which depend on customer deposits for lending.

Notably, firms like Coinbase and PayPal have indicated they will continue to offer incentives on stablecoin holdings, viewing these as "rewards" rather than interest, thereby challenging the intent of the legislation.

This complex situation raises the stakes for both financial innovation and stability, prompting discussions on the balance between fostering crypto advancements and protecting the banking sector.

As Congress assesses these critical concerns, the outcome may have lasting implications for the future of both cryptocurrencies and traditional finance in the United States.