Banking Associations Push to Close GENIUS Act Loopholes
Commentary by Gage Raju-Salicki
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this space will shape the future of our financial system—its structure, efficiency, and fairness—for decades to come."
The American Bankers Association and state bankers associations from all 50 states urged leaders of the Senate Banking Committee and its Digital Assets Subcommittee to address "loopholes" in the recently enacted GENIUS Act as part of upcoming digital asset market structure legislation.
In a comment letter, the associations proposed three amendments to the GENIUS Act:
- Extend the Interest Prohibition for Stablecoins. Broaden the Act’s ban on interest or yield payments for payment stablecoins beyond issuers to include brokers, dealers, exchanges, and affiliates. The associations said this would prevent yield offerings that undermine stablecoins’ role as a payment mechanism, divert deposits from community banks, and reduce credit creation.
- Repeal Section 16(d) to Preserve State Authority. Remove the provision allowing uninsured, out-of-state–chartered institutions to operate nationwide without host state approval. The associations argued this change is essential to preserving the dual banking system and ensuring states can license and supervise institutions serving their residents.
- Close Loopholes for Nonfinancial Companies. Eliminate all approval pathways that permit public or private nonfinancial companies to issue payment stablecoins. The associations said such issuers pose risks of regulatory arbitrage, conflicts of interest, and excessive concentration of economic power, and that longstanding safeguards separating banking and commerce should be maintained.
Commentary
The Association's letter draws some attention to regulatory ambiguities in the GENIUS Act. The interest/yield question - a feature, not a bug, of the GENIUS Act - is particularly interesting. How will it ultimately be handled by exchanges? Although there is a prohibition on issuers paying yield outright, perhaps allowing yield to be passed on by third-parties isn’t such a bad thing.
Questions remain about what happens when a private, non-predominantly-financial company issues a stablecoin. Under GENIUS, it’s totally permissible. Could OpenAI issue its own—not Robinhood’s derivative version—token? Certainly. But these assets would still have to be covered by 1:1 reserves. As a result, issuing a stablecoin may not be in the best interests of some of these companies, and thus they may not opt to issue one.
The banking associations may be right and GENIUS may need some amendments. However, it’s too early to tell for now. SEC Commissioner Hester Peirce’s recent words on tokenization are apropos here: we’re going to have to "see what the markets like."