The U.S. banking industry is calling on Congress to close the stablecoin interest loophole in the GENIUS Act to prevent the risk of a trillion-dollar deposit outflow.

Major banking associations in the United States jointly urged Congress to address key gaps in the "Payment Stablecoin Clarity Act" (GENIUS Act) to prevent stablecoin issuers and their affiliated companies from paying interest to holders. The banking industry warned that this move could lead to massive deposit outflows from the banking system, subsequently raising borrowing costs for businesses and consumers, and threatening the stability of traditional credit markets. This debate may evolve into a broad discussion about the role of U.S. stablecoins in the international payment system, and future political shifts (such as a return of the Trump administration) could impact regulatory directions. The pressure of "regulatory arbitrage" due to international regulatory differences has also become a focal point.

Key Points:

1. Blocking Vulnerability Appeal: The American Bankers Association (ABA), the Bank Policy Institute (BPI), and four other banking organizations pointed out that while the GENIUS Act prohibits stablecoin issuers from paying interest, it does not explicitly prohibit their affiliated exchanges and distribution channels from providing returns, resulting in regulatory loopholes.
2. Risk of Deposit Outflow: The banking sector cites predictions from the U.S. Department of the Treasury, emphasizing that if interest-bearing stablecoins are allowed to exist, it could trigger up to $6.6 trillion in bank deposit outflows, exacerbating financing pressures on banks and money market funds.
3. Credit Market Threats: The banking industry emphasizes that bank deposits are a key source of funding for loans, while money market funds are subject to securities regulations and can earn interest. Payment stablecoins are neither used for lending nor do they have equivalent regulation. The large-scale shift of funds from banks and money market funds to interest-bearing stablecoins will drive up borrowing costs and reduce the supply of credit.
4. Expand the scope of the ban: The association calls on Congress to extend the ban to all stablecoin trading service providers, including affiliated platforms and intermediaries, to protect the stability of the traditional financing system.
5. Political Variables Impact: The debate surrounding the "GENIUS Act" may be influenced by changes in the future political landscape (for example, the Trump administration may adjust the regulatory priorities for digital assets). The direction of policy adjustments (tightening, loosening, or aligning with international standards) will determine the regulatory intensity of stablecoin activities (especially those generating Interest).
6. International Competitive Pressure: If other major jurisdictions (such as the European Union, the United Kingdom, and Singapore) allow the issuance of interest-bearing stablecoins under a regulated framework, it may force the U.S. Congress and regulatory agencies to seek a balance between maintaining domestic financial stability and enhancing the competitiveness of U.S. dollar stablecoins in the global cross-border payment market.

Analysis of the Joint Statement from the Banking Sector: What are the Vulnerabilities? How Great are the Risks?

The five most influential banking trade organizations in the United States—American Bankers Association (ABA), Bank Policy Institute (BPI), Consumer Bankers Association (CBA), Financial Services Forum (FSF), and Independent Community Bankers of America (ICBA)—recently issued a joint statement targeting the potential loopholes regarding stablecoin interest payments in the GENIUS Act.

These organizations point out that the current provisions of the bill explicitly prohibit stablecoin issuers from providing interest, returns, or other financial benefits to holders. However, the bill does not extend the ban to cryptocurrency exchanges and affiliated entities acting as distribution channels. This means that issuers can theoretically collaborate with exchanges, allowing the latter to provide stablecoin holding returns to their users, thereby circumventing the ban and creating a substantive "indirect interest payment" channel.

Trillion Dollar Outflow Warning and Credit Tightening Concerns

The banking organization issued a serious warning in its statement, citing analysis data from the U.S. Treasury: if compliant stablecoins that offer yields were to circulate widely, it could lead to as much as $6.6 trillion in funds flowing out of the banking system and money market funds. This would significantly exacerbate the financing pressures faced by banks (especially small and medium-sized banks that rely on deposit financing) and money market funds.

The statement emphasizes two key distinctions:

1. Bank Loan Cornerstone: Bank deposits are the main and stable source of funds for banks to issue loans to businesses and consumers.
2. Regulatory Framework for Money Market Funds: Money market funds are regulated by securities laws, allowing them to pay returns to investors (typically investing in short-term, highly liquid assets). The design intention of stablecoins as a payment method is not for issuing loans, and they are currently not subject to the same strict regulations and oversight as bank deposits or money market funds.

Therefore, banking organizations assert: "Incentive funds shifting from bank deposits and money market funds to stablecoins will ultimately lead to increased borrowing costs and reduce the supply of loans to businesses and consumer households." Especially during periods of pressure in financial markets, joint marketing arrangements between issuers and exchanges may accelerate deposit outflows, further impacting credit availability.

Political Variables and Global Regulatory Games

The joint statement calls on lawmakers to take immediate action to explicitly extend the interest payment ban to all entities facilitating stablecoin transactions, including affiliated platforms, wallet service providers, payment processors, and other intermediaries, in order to completely close loopholes and maintain the stability of traditional financing channels.

Looking to the future, discussions surrounding the "GENIUS Act" and stablecoin regulation may be deeply intertwined with potential changes in the U.S. political landscape. If Trump wins the 2024 election, his administration may reset the federal priorities and framework for regulating digital assets. Any future policy adjustments—whether further tightening restrictions, moderately relaxing them to accommodate innovation, or seeking alignment with international standards—will directly impact regulatory agencies' enforcement standards and rule revisions regarding stablecoin activities, particularly those involving Interest payment models.

At the same time, developments at the international level will also put pressure on the United States. If the EU, the UK, or other major financial centers explicitly allow and regulate stablecoins under their regulatory frameworks (for example, treating them as variants of money market funds or electronic money), this could create space for "regulatory arbitrage." At that time, the U.S. Congress and regulatory agencies will face more complex challenges: how to strike a difficult balance between ensuring the stability of the domestic banking system, preventing systemic risks, and maintaining the competitiveness of dollar-pegged stablecoins (such as USDC, USDP) in the rapidly developing global cross-border payment and digital asset markets.

Frequently Asked Questions (FAQ)

1. What is the impact of blocking the stablecoin interest loophole on global payments?

   • Stricter regulations may weaken the appeal of dollar stablecoins in international markets, especially in regions where regulated interest-bearing stablecoins are allowed. This may lead users to turn to stablecoins or alternatives issued in other jurisdictions.

2. What role do stablecoins play in cross-border trade?

   • Cross-border payment stablecoins (such as USDC, USDT) enable near-instant settlement in multiple currencies, providing an alternative payment solution to the traditional agent bank system that is faster and potentially lower in cost for international trade.

3. How will changes in stablecoin regulation affect other industries?

   • In addition to the banking industry and cryptocurrency exchanges, the operational models and development of industries such as e-commerce platforms (which rely on fast payments), remittance service providers (which utilize stablecoins to reduce cross-border transfer costs), and decentralized finance (DeFi) protocols (which rely on stablecoins as base liquidity) may be affected by the evolution of payment stablecoin regulations.

Conclusion: Regulatory Game Escalates, Stablecoin Ecosystem Faces Restructuring

The collective pressure from the American banking industry on Congress to close the interest loophole in the GENIUS Act highlights the deep concerns of the traditional financial system about the potentially disruptive impact of compliant stablecoins. The warning of a risk of $6.6 trillion in deposit outflows elevates this technical legislative debate to a level concerning the stability of the national credit market. However, the direction of regulation will not only depend on domestic legislative processes but will also be profoundly influenced by the political variables of the upcoming U.S. elections and the competitive landscape of global stablecoin regulatory frameworks. Finding a balance between maintaining financial stability, protecting consumers, embracing payment innovation, and preserving the international competitiveness of the dollar stablecoin is a severe test that American policymakers face. The outcome of this game will profoundly reshape the development path of stablecoins and their role in the global financial system.