US bank groups ask to close GENIUS Act’s stablecoin yield ‘loophole’

US banking groups have urged Congress to close a so-called loophole letting stablecoin issuers offer yields through affiliate firms, fearing it undermines the banking system.

Several US banking groups led by the Bank Policy Institute (BPI) urged regulators to close what they say is a loophole that could indirectly allow stablecoin issuers and their affiliates to pay interest or yields on stablecoins.

In a Tuesday letter to Congress, BPI warned that a failure to close the so-called loophole in the new stablecoin laws under the GENIUS Act could disrupt the flow of credit to American businesses and families, potentially triggering $6.6 trillion in deposit outflows from the traditional banking system.

The GENIUS Act prohibits stablecoin issuers from offering interest or yield to holders of the token; however, it does not explicitly extend the ban to crypto exchanges or affiliated businesses, potentially enabling issuers to sidestep the law by offering yields through those partners, the groups said.

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