A group of bank and financial industry groups issued a fact sheet for policymakers to consider as digital asset market structure legislation is developed.
Specifically, the groups note that the requirements in the GENIUS Act, now signed into law, prohibiting the payment of interest and yield on stablecoins are not evaded or undermined.
Payment stablecoins, they state, do not substitute for bank deposits, money market funds or investment products. Further, they say that payment stablecoin issuers are not regulated, supervised or examined in the same way. The groups point out that these distinctions are why payment stablecoins should not pay interest the way highly regulated and supervised banks do on deposits or offer yield as money market funds do.
The fact sheet was put together by the Consumer Bankers Association, Bank Policy Institute, American Bankers Association, Financial Services Forum, and Independent Community Bankers of America.
Bank deposits are an important source of funding for banks to make loans, and money market funds are securities that make investments and subsequently offer yield, they add. Payment stablecoins serve a different purpose, as they neither fund loans nor are regulated as securities.
While the GENIUS Act contained a prohibition on stablecoin issuers offering interest or yield, as well as other financial and non-financial rewards, to holders of stablecoins, the associations say that without an explicit prohibition applying to exchanges, the requirements in the GENIUS Act can be easily evaded and undermined by allowing payment of interest indirectly to holders of stablecoins.
If that were the case, they say, the result would be greater deposit flight risk and that would undermine credit creation throughout the economy. Further, the corresponding reduction in credit supply means higher interest rates, fewer loans and increased costs for businesses and households.
Ultimately, the groups state, Congress must close the stablecoin payment of interest loophole.