The GENIUS Act challenge

President Donald Trump signed the GENIUS Act in July, which establishes a regulatory framework for the issuance and use of stablecoins. Bankers are asking a lot of questions about this law and stablecoins. I spoke with Deloitte consultants Richard Rosenthal, who leads the firm’s banking regulatory practice, and Roy Ben-Hur, who leads its digital assets practice, to learn what the GENIUS Act might mean for community banks. .Rosenthal said the Act will create another payment rail for moving money. He said the rules make it clear who can issue payment stablecoins, that is, stablecoins designed specifically to be used as payment instruments. Issuers are typically banks, but Rosenthal said the rules make it possible for some nonbanks to be issuers as well. Issuers will need to reserve against payment stablecoins on a one-to-one basis. The issuer will not be able to use those reserves for other purposes, such as lending, so it will tie up liquidity. Issuers also will not be able to pay interest on payment stablecoin balances.Rosenthal explained, however, that some companies (he cited Amazon as a potential example) might encourage people to make purchases with stablecoin by offering additional value, somewhat similar to points or cash back that is sometimes offered for using a credit card. The vendor may make an arrangement with the issuer to share in the benefit. There are multiple reasons vendors might want to do this, including the speed of payments that can be accomplished through a payment stablecoin. Rosenthal explained that community banks, which are unlikely to be issuers, may elect to become repositories for payment stablecoins. Customers may want to convert their payment stablecoins into dollars through their local bank. He said bankers will need to create a “simple on/off ramp” for stablecoin that gives customers access to their existing bank account.Community banks might also want to create a way for customers to convert their dollars into a stablecoin. Rosenthal said that scenario is a bigger deal. “There is a U.S. Treasury study that came out in early May, and it speaks about $6.6 trillion in traditional DDA accounts that are at risk of flight from those banks,” Rosenthal said. For most community banks, the challenge will be responding to legitimate customer demand for payment stablecoins without cannibalizing its own deposits. While community banks won’t have to reserve for payment stablecoins, cash will flow out of customer accounts if they decide they want to use the new payment rail more than they care about keeping cash in their bank account.