Banks are expressing concerns about the potential for stablecoins to harm the U.S. credit system. The Bank Policy Institute (BPI), a public policy, research, and advocacy group that represents the nation’s leading banks, including JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo, has issued a public letter calling on Congress to uphold the restrictions of the GENIUS Act regarding stablecoin yield payments.
The institution clarifies that stablecoins issuers are not “regulated, supervised or examined” in the same way that banks, and that’s why they have the advantage of offering higher yield percentages than their traditional finance counterparts.
This difference of several percentage points in yield has the potential to sway deposits toward stablecoins. If this deposit flight reaches a critical point, the BPI stresses that it will impact the credit creation system, which involves banks turning deposits into loans, ultimately affecting the U.S. economy.
The GENIUS Act, passed by Congress, incorporated guardrails to avoid this, explicitly prohibiting stablecoin issuers from paying yield to token holders directly. Nonetheless, the BPI states that through exchanges, stablecoin issuers are covertly paying this yield to customers, sidestepping these protections.
The document states:
Without an explicit prohibition applying to exchanges, which act as a distribution channel for stablecoin issuers or business affiliates, the requirements in the GENIUS Act can be easily evaded and undermined by allowing payment of interest indirectly to holders of stablecoins.
“Congress must protect the flow of credit to American businesses and families and the stability of the most important financial market by closing the stablecoin payment of interest loophole,” the BPI concludes.
Most institutions paying yield for stablecoins are not direct issuers, including Paypal with PYUSD and Coinbase with USDC. Critics state that companies like Paxos act as Bank-as-a-service (BaaS) providers, enabling yield distribution and attracting capital flows.
Read more: Stablecoin Companies Harness Loopholes in the GENIUS Act to Offer ‘Rewards’
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