Banks Under Pressure From the Crypto World, Fear Replacement by Stablecoins

Banks Fear Substitution by Stablecoins After GENIUS Act

Now that stablecoins have become regulated via the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS) Act, banks are feeling the pressure of an alternative system entering the finance world.

According to Politico, banking groups like the American Bankers Association are reallocating their lobbying resources to enact changes to the already approved act, aiming to protect the interests of traditional finance groups.

At the center of the issue is the possibility that exchanges and other institutions will pay yield for stablecoin deposits, which could affect the operability of banks. The GENIUS Act explicitly forbids stablecoin issuers from offering this yield, but allows third parties to do it, and this is a loophole that the banking industry wants to plug.

Analysts have recently criticized Coinbase and Paypal, which are already offering yield programs for stablecoin deposits, arguing that they are not direct issuers for USDC and PYUSD.

The ones that would potentially be substituted would be small banks, which are the point of contact of users with the traditional financial system.

Christopher Williston, president and CEO of the Independent Bankers Association of Texas, stated that these measures felt “like there’s a move to replace” them, as banks are unable to provide the same level of yield that these crypto institutions.

Big banking has also raised concerns about this issue. The Bank Policy Institute (BPI), a group representing giants such as JPMorgan Chase and Bank of America, called on Congress to protect the American economy by correcting this omission, stating that failing to do so would jeopardize the U.S. economy, putting the credit creation system at risk.

Read more: Understanding the GENIUS Act: US Stablecoins Revolution

Read more: BPI Argues That GENIUS Act Stablecoin Yield Loopholes Jeopardize the Banking Sector