Bank Policy Institute (BPI), together with major U.S. banking groups have called on the Congress to address a critical GENIUS Act loophole immediately.
In a letter, BPI says a loophole in the GENIUS Act, which allows stablecoin issuers to offer yields through affiliated firms. BPI warns this could destabilize the traditional banking system.
The banking coalition includes the American Bankers Association, Consumer Bankers Association, Independent Community Bankers of America, and Financial Services Forum.
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The coalition warned this oversight could lead to a staggering $6.6 trillion in deposit outflows, threatening the U.S. credit system.
GENIUS Act loophole
The GENIUS Act was signed into law by President Donald Trump on July 18, 2025.
The act prohibits stablecoin issuers from directly paying interest or yields to token holders.
However, the legislation does not explicitly extend this ban to crypto exchanges or affiliated businesses, which BPI calls a dangerous loophole.
This gap allows stablecoin issuers to indirectly offer yields, where users of stablecoins such as Circle’s USDC can earn rewards for holding their tokens.
Such yield offerings are a key marketing strategy for stablecoin issuers, drawing users away from traditional bank deposits.
The banking groups argue that stablecoins, unlike bank deposits or money market funds, do not fund loans or invest in securities to generate yield, making them fundamentally different.
“Allowing stablecoin issuers to pay interest through affiliates undermines the regulatory framework that ensures banks can support credit creation,”
Declaration of the BPI
They cited the U.S. Treasury report from April which estimates that unchecked stablecoin growth could trigger a massive shift in the money supply. This would then lead to increased deposit flight risks, raising interest rates, and reducing loan availability for businesses and households.
Currently, the stablecoin market, dominated by Tether (USDT) and Circle (USDC) with a combined market cap of $231.4 billion, represents a fraction of the $22 trillion U.S. money supply.
However, the Treasury projects the stablecoin market could reach $2 trillion by 2028.
The BPI warns that if this GENIUS Act loophole is not closed, it could prevent the banking system’s ability to support America’s economy.
While the Trump Administration has been extremely crypto friendly, they have continuously come under Democrat’s scrutiny.
Needless to say the Republican lawmakers will need to make immediate amends to rectify the situation.
