Wall Street bankers are hammering away at some provisions of the new U.S. stablecoin law that was hailed by President Donald Trump and the crypto sector as a huge first step toward establishing a fully regulated U.S. industry, and the banks are joined by unusual bedfellows from the consumer-advocate world in sounding alarms.
Hoping to revise and cut provisions that might threaten aspects of the current financial system, the American Bankers Association and other bank lobbying groups aligned in a letter this week with consumer advocacy organizations — usually opponents of Wall Street’s policy aims. One provision of the stablecoin law known as the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act lets a stablecoin-issuing subsidiary of a state-chartered uninsured depository institution run money-transmission and custody services nationwide, which the bankers argue bypasses existing state licensing and oversight.
Their letter asked several key U.S. senators to insist that this entire section be removed.
“Ignoring state law in this regard invites regulatory arbitrage, allowing certain uninsured depository institutions special privileges to operate across state lines as federally insured banks currently do, but without the extensive regulatory and supervisory requirements,” the August 13 letter argued.
The bank lobbyists also cooperated in a separate effort to protect deposits and other core aspects of their businesses from the GENIUS Act, arguing in another letter to lawmakers this week that the law leaves an opening for crypto firms to offer returns on stablecoins. While the law bans stablecoin issuers from offering interest or yield, it doesn’t stop the issuers’ affiliates or exchanges from doing so indirectly. The bankers fear a significant loss of deposits and money-market fund activity from the resulting competition stablecoins might present.
“Congress must protect the flow of credit to American businesses and families and the stability of the financial market by closing the stablecoin payment of interest loophole,” the groups emphasized, including the ABA and others. Banks convert deposits into loans, so the lack of deposits threatens essential U.S. lending.
The GENIUS Act was signed into law by President Trump, but the larger and more complex legislation to regulate U.S. crypto markets is still pending. That future bill, which has already passed the House of Representatives as the Digital Asset Market Clarity Act, could still overhaul provisions of the stablecoin law, even before that new law is enacted by U.S. financial regulators. That’s what the bankers are advocating, alongside their temporary consumer-advocate allies.
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