U.S. banking associations have raised alarms that stablecoins offering yields, such as USDC, could trigger significant deposit flight from traditional banks, endangering the stability of the banking system. They are urging Congress to address perceived shortcomings in the recently enacted GENIUS Act legislation targeted at stablecoin regulation.
Industry advocates argue that while the GENIUS Act prohibits stablecoin issuers directly from providing interest or yield to token holders, it does not explicitly prevent affiliated entities like cryptocurrency exchanges from offering such incentives. This potential loophole, they contend, could entice depositors to shift funds out of traditional bank accounts and into yield-bearing stablecoins.
Banking representatives highlight a critical distinction from traditional deposits: stablecoins generally lack the same robust regulatory safeguards and access to established lender-of-last-resort facilities. This difference raises concerns about financial stability should yield-bearing stablecoins rapidly drain deposits away from regulated banking institutions.
The debate centers on the need to tighten the GENIUS Act framework to comprehensively prevent yield-bearing models. Banking groups emphasize that closing regulatory gaps is vital to mitigate systemic risks stemming from deposit migration.