The introduction of the GENIUS Act, which officially regulates stablecoins, has stirred new friction between banks and the cryptocurrency sector. Traditional financial institutions are sounding alarms that the law could encourage massive movement of funds out of banks and into digital assets, potentially shifting trillions of dollars.
Major banking groups, including the American Bankers Association, are redirecting their lobbying efforts to secure changes in the legislation. Their primary concern is the possibility of customers choosing stablecoins over bank deposits, particularly if crypto platforms continue offering attractive yields.
The GENIUS Act prevents issuers themselves from paying interest on customer deposits. However, third-party platforms like exchanges are allowed to do so. This distinction gives crypto companies an opening that banks argue threatens their business model.
Critics argue that it gives platforms like PayPal and Coinbase an advantage since they already promote programs that reward users who hold coins like PYUSD and USDC. Smaller banks, in particular, worry they will be squeezed out since they cannot compete with the returns crypto firms are offering.
Larger institutions share similar worries. The Bank Policy Institute, which counts Bank of America and JPMorgan Chase among its members, has pressed Congress to revisit the law. The group argues that leaving this allowance untouched could endanger the U.S. economy by undermining how banks create credit.
They point to Treasury Department analysis estimating as much as $6.6 trillion could flow out of banks under certain conditions. Banking representatives caution that such an outcome would lead to fewer loans, higher borrowing costs, and a heavier burden on everyday businesses and households.
Meanwhile, crypto advocates are pushing back against the banks’ position. Groups such as the Blockchain Association and the Crypto Council for Innovation have accused banks of trying to block fair competition. In a letter to senators, they argued that restricting stablecoin platforms from offering yields would unfairly protect traditional institutions while limiting consumer choice and slowing industry growth.
Coinbase’s chief legal officer, Paul Grewal, also dismissed the idea that the allowance in the GENIUS Act was unintended, stating on X that this was no loophole but a deliberate element of the law.
The dispute highlights the broader struggle between Wall Street institutions and the fast-growing crypto sector. The White House has leaned toward supporting digital assets, with Donald Trump’s administration signaling that stablecoins could play a role in strengthening demand for U.S. government bonds.
The crypto industry, including leading players like Riot Platforms Inc. (NASDAQ: RIOT), will be hoping that banks don’t prevail on policymakers to make regulatory changes that roll back the gains that recently passed laws have ushered in.
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