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Community bankers in the United States are urging lawmakers to close perceived gaps in stablecoin legislation, warning that yield-bearing crypto programs could drain deposits from local banks. The concern centers on the GENIUS Act, passed last summer, which governs the issuance and use of stablecoins.
Banking organizations have highlighted that the pending provisions might redirect capital from community banks and hurt the whole economy, especially households and small businesses. The regulators are now under more pressure as discussions on regulations concerning cryptocurrency become heated, and new legislative negotiations are on the horizon.
The American Bankers Association Community Bankers Council sent a letter this week to the US Senate outlining risks it sees in the GENIUS Act. The council warned that allowing stablecoin issuers to offer interest or rewards could make those assets more attractive than bank deposits.
The letter stated that large-scale deposit shifts could weaken community bank lending. The council said reduced lending would affect small businesses, farmers, students, and home buyers in local communities. It warned that billions moving away from banks could have real economic effects.
ABA President Rob Nichols reinforced that message in public remarks. He said loopholes in the law could redirect trillions of dollars from the banking system. He urged Congress to revise the bill and prevent reward-based stablecoin programs from competing directly with deposits.
Crypto advocacy groups challenged the banking industry’s warnings. The Blockchain Association said available evidence does not show disproportionate deposit outflows linked to stablecoin adoption. It argued that stablecoins do not threaten bank funding at scale.
The association said restrictions on yield-bearing stablecoins could limit competition in payments and financial services. It also warned that unclear rules could create regulatory uncertainty for companies building crypto payment tools.
In addition, the group noted that banks already hold trillions of dollars in reserves at the Federal Reserve. Those reserves earn interest without flowing into loans. The association said this weakens claims that stablecoins would directly reduce lending capacity.
The banking industry has raised alarms since the GENIUS Act passed in July. In August, the ABA, the Bank Policy Institute, and more than 50 state banking groups warned Congress that exchanges could still offer rewards to stablecoin holders.
At the same time, crypto groups, including the Crypto Council for Innovation, pushed back. In an August 2025 letter, they told the Senate Banking Committee that stablecoin payments do not fund loans. They said tighter rules would reduce innovation and consumer choice.
Regulators offered mixed signals. Jonathan Gould, head of the Office of the Comptroller of the Currency, downplayed fears at the ABA Annual Convention last October. He said any material deposit flight would draw attention and trigger action. He added that such shifts would not happen overnight.
Further clarity may come soon. A group of senators will meet on Tuesday to discuss a broad crypto market structure bill. The talks could address the treatment of yield-generating stablecoins. With competing warnings and defenses on record, will lawmakers tighten the rules or preserve flexibility in stablecoin design?
Meanwhile, the Federal Deposit Insurance Corporation approved a proposal on December 16 to implement stablecoin provisions. The FDIC confirmed banks may issue stablecoin payments through subsidiaries. It said banks must apply for approval and follow new application and review processes under the law.
Also Read: World Liberty Seeks US Bank Charter to Expand USD1: A Shift in US Stablecoin Banking?
Community bankers urge Congress to revise the GENIUS Act, warning that yield-bearing stablecoins could divert bank deposits and reduce local lending. Crypto groups dispute those risks and call for clarity. As lawmakers review broader crypto bills, the debate now centers on balancing financial stability, innovation, and fair competition.
