US banking groups are intensifying pressure on lawmakers to amend the recently passed GENIUS Act, warning that its current structure risks destabilizing the financial system by indirectly enabling crypto exchanges to offer yield on stablecoins.
It marks a subsequent attack from banking giants against crypto, after reports that they are trying to disrupt Coinbase and Robinhood.
Banks Warn Stablecoin Yield Rules Could Spark Trillion-Dollar Deposit Flight
The Financial Times reported pushback from the American Bankers Association, the Bank Policy Institute, and the Consumer Bankers Association.
Based on the report, these traditional finance (TradFi) players argue that the GENIUS Act, passed in July, contains a “loophole.”
The loophole would supposedly allow exchanges such as Coinbase and Binance to reward holders of stablecoins issued by third parties like Circle (USDC) or Tether (USDT).
While the Act explicitly bans issuers themselves from paying interest, banks claim that crypto platforms could exploit this gap. The banking groups fear this could spark mass deposit outflows from the traditional system.
Meanwhile, a US Treasury analysis earlier this year estimated that as much as $6.6 trillion in deposits could leave banks if stablecoins generate yield.
Banking lobbies warn that this shift would increase deposit flight risks, especially during times of stress. It would drive up borrowing costs, reduce lending capacity, and ultimately affect small businesses and households.
Wall Street vs. Crypto Competition Heats Up
The lobbying effort suggests mounting competition between Wall Street institutions and the crypto industry. It has gained growing support from the White House.
Treasury Secretary Scott Bessent has previously argued that stablecoins could become a key buyer of US government bonds. Meanwhile, President Donald Trump has positioned himself as an ally of digital assets.
The Federal Reserve’s recent decision to loosen its specialized crypto supervision program has reinforced the administration’s stance. The move is intended to reduce barriers for banks engaging with digital assets.
“There is nothing to be afraid of when thinking about using smart contracts, tokenization, or distributed ledgers in everyday transactions,” Governor Christopher Waller said in a speech on Wednesday.
Analysts described the policy shift as bullish for the sector, aligning with Trump’s executive order to curb unfair crypto debanking.
Crypto firms, meanwhile, reject the banking industry’s alarm. The Crypto Council for Innovation and the Blockchain Association said the proposed changes would tilt the playing field in favor of legacy institutions. This, they said, would be at the expense of innovation and consumer choice.
Coinbase’s chief legal officer, Paul Grewal, also dismissed the banks’ warnings as an attempt to shield themselves from competition. The Coinbase executive argued that lawmakers and the President had already rejected such efforts.
Meanwhile, BeInCrypto previously reported that traditional institutions are increasingly exploring tokenized securities, digital custody, and even DeFi-inspired services to remain competitive.
Yet infrastructure gaps and regulatory uncertainty remain obstacles. The latest pushback over stablecoins may be less about protecting consumers than about protecting balance sheets.
Recent reports only add to the perception that a new form of Operation Choke Point is emerging. This time, however, it targets crypto adoption at scale.
BeInCrypto also reported that US banking giants have sought to disrupt platforms like Coinbase and Robinhood.
Despite these efforts, exchanges continue to expand in the US and Europe, highlighting resilience in the face of Wall Street resistance.
As stablecoins cement their role in global finance, the clash between banking groups and crypto firms is set to intensify.
Whether the GENIUS Act tilts toward protecting legacy players or fostering open competition may determine he future of deposits and the broader trajectory of US financial innovation.
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