Banks need vigilance of stablecoin regulation

During the last few weeks, a major battle is taking place between advocates for the banking industry and those representing the cryptocurrency industry. The GENIUS Act, passed last July to create rules guiding the use of payment stablecoins, prohibits stablecoin issuers from paying interest on their tokens..Stablecoins are supposed to be a payment vehicle, not a store of value. Yet, some crypto firms are working with partners or affiliates to offer rewards tied to stablecoins that function a lot like interest payments on a savings account. Banking industry advocates are calling this an attempt to evade the intent of Congress.While I have heard a lot of bankers talk about stablecoins recently, I don’t know any who are planning to issue them. The main point of discussion is whether competitors will be able to offer interest-rate-like rewards that ultimately result in the disintermediation of funds from the banking industry. One often-quoted study from the U.S. Treasury Department estimates that $6.6 trillion in bank deposits are at risk of leaving the banking system and moving over to stablecoins.The concerns are serious. Such substantial disintermediation would make it much more difficult for community banks to fund loans. Deposits are hard enough to come by as it is; competition from interest-paying or reward-granting stablecoins would pose a major disruption to banking. Eight financial trade associations recently wrote to members of the U.S. Senate stating: “Every deposit represents a home loan, a small business loan, or an agricultural loan. Simply stated, policies that undermine bank and credit union deposits destroy local lending.”Strong language, but the traditional notion of banking is literally under attack. Traditional banking marries deposit gathering with loan funding. Both business activities are closely supervised and regulated. Loan rates are kept proportionate to rates paid to attract deposits. The exchanges and other financial entities that want to offer rewards for stablecoins are not collecting deposits to fund loans. They do not care about financing essential businesses across America, and up and down Main Street.The banking industry seeks a complete ban on financial or value-based incentives to use stablecoins. Regardless of the Senate vote in January, bankers should continue to watch the issue closely to make sure a competing financial and payments structure does not evolve that replaces a sizable portion of the community banking industry.To get a sense for the competing argument, I encourage you to read a report from crypto company Coinbase. Check out their blog post for Sept. 16, 2025 titled: “Rejecting the Banks’ Deposit Erosion Myth” at coinbase.com/blog/