The American Bankers Association and 52 state banking groups are pressing the Treasury Department to strictly enforce a federal ban on interest payments for stablecoins used in transactions, warning that loopholes could drain deposits from traditional banks and cripple lending to small businesses and farms.
What to Know:
- The banking industry submitted a letter to Treasury urging enforcement of the GENIUS Act's prohibition on interest for payment stablecoins, citing concerns about potential exploitation through affiliate structures and indirect yield offerings.
- Banks estimate that interest-bearing stablecoins could trigger a 25.9% deposit loss, reducing lending capacity by $1.5 trillion and shrinking small business and farm credit by $110 billion and $62 billion respectively.
- The stablecoin interest debate has stalled the Senate's Market Structure Bill, with banking and crypto lobbies clashing over whether issuers should be allowed to offer returns on digital dollar tokens.
Banking Groups Push for Stablecoin Interest Ban
The American Bankers Association delivered its position to the Treasury Department in response to an advance notice of proposed rulemaking on federal stablecoin legislation. The letter argues that Congress designed the GENIUS Act to keep payment stablecoins as transaction tools, not investment vehicles. Banking groups want Treasury to block any workarounds that would let digital asset platforms offer high-yield incentives through affiliated entities or alternative payment structures.
The associations warned that community banks serving rural areas face the most acute risk from deposit flight. Without strict enforcement, they contend, stablecoin issuers could structure offerings to technically comply with the law while still providing economic benefits to holders.
The groups asked Treasury to define "interest or yield" broadly enough to capture any economic advantage, regardless of how companies label the payments.
Banks specifically requested that Treasury treat indirect payments through partners or affiliates as issuer payments. They also pushed back against narrow readings of the word "solely" in the statute, arguing that any benefit tied to holding a stablecoin should trigger the prohibition.
The letter framed these requests as necessary to prevent what it called "exploitation of the law."
The deposit loss projections center on the competitive threat that interest-bearing stablecoins would pose to traditional checking and savings accounts. Banking groups calculated that a 25.9% outflow would translate to roughly $1.5 trillion in reduced lending capacity across the financial system. Small business credit could contract by $110 billion under this scenario, while agricultural lending would drop by $62 billion, according to the associations' estimates.
Legislative Delays and Industry Conflict
The stablecoin interest question has become a sticking point in broader crypto legislation. Senator Cynthia Lummis has described the Market Structure Bill as the "most important piece of digital asset legislation in United States history," but the measure has missed multiple deadlines. Senate Banking Republicans, under Chairman Tim Scott, updated the draft bill with plans to advance it by late September, though that target date passed without action.
The impasse reflects deeper tensions between banking and crypto interests over how aggressively to regulate decentralized finance platforms and whether stablecoin issuers should face the same restrictions as banks on paying returns. Senate Democrats proposed amendments that would have explicitly barred both direct and indirect interest payments by stablecoin issuers, including through affiliate structures.
Republicans and crypto industry representatives rejected those changes.
Crypto advocates are now calling for swift legislative movement before year's end. Mason Lynaugh, community director for Stand with Crypto, said Congress has a narrow window to establish the United States as a leader in digital asset markets. That outcome depends on passing comprehensive market structure legislation, he noted, though the timeline for Senate action remains uncertain.
The Treasury Department's rulemaking process will likely shape how strictly courts and regulators interpret the GENIUS Act's interest ban once the legislation takes effect. Banking groups want clear guardrails in place before stablecoin issuers begin operations under federal oversight.
What This Means
The banking industry's intervention highlights how traditional financial institutions view stablecoins as a competitive threat to deposit-gathering, not just a payments innovation. The debate over interest payments will determine whether stablecoins function as digital alternatives to cash or evolve into yield-generating products that compete directly with bank accounts. Resolution of this question appears necessary before Congress can advance broader crypto legislation.