A $6.6 trillion sword of Damocles now hangs over the traditional banking sector, courtesy of what industry observers are calling the most consequential legislative oversight since Glass-Steagall’s repeal—though this time, the unintended consequences flow not from what Congress included in the GENIUS Act, but from what it conspicuously omitted.
The legislation’s architects carefully prohibited stablecoin issuers from paying interest directly on their tokens, presumably to prevent these digital dollars from competing too aggressively with traditional deposits. Yet they left a loophole wide enough to drive a Brink’s truck through: affiliates such as exchanges can offer yields with impunity. Circle might not pay interest on USDC directly, but Coinbase—conveniently enough—certainly can.
This regulatory arbitrage has banking associations scrambling to sound alarm bells, and their panic appears well-founded. The Treasury’s own estimates suggest that deposit outflows could reach stratospheric levels as yield-hungry customers migrate toward stablecoin platforms offering returns that legacy banks simply cannot match.
When regulatory and capital constraints prevent traditional institutions from competing on yield, the outcome becomes mathematically inevitable.
The irony runs deeper than mere competitive disadvantage. Banks face stringent oversight on deposit rates and lending practices, while stablecoin issuers exploit affiliate relationships to circumvent restrictions entirely. This creates what economists euphemistically call an “uneven playing field”—though “rigged game” might prove more accurate.
The regulatory asymmetry between legacy banks and crypto affiliates transforms competitive disadvantage into what resembles a systematically rigged financial game.
Banking powerhouses including the Bank Policy Institute, American Bankers Association, and Consumer Bankers Association have petitioned Congress for immediate legislative fixes. Their proposals include extending yield prohibitions to affiliated entities and repealing Section 16(d) of the GENIUS Act to restore state oversight mechanisms. The Act’s regulatory framework was designed to address market issues but inadvertently created the very loopholes now threatening traditional banking’s competitive position.
Whether lawmakers will act swiftly enough to prevent the anticipated deposit hemorrhaging remains uncertain.
Meanwhile, crypto advocates celebrate stablecoins as efficiency-enhancing innovations that strengthen dollar dominance globally. They view yield offerings as essential features enabling participation in decentralized finance models. These digital assets enable 24/7 transactions that bypass traditional banking limitations, making them particularly attractive to users seeking constant market access. Despite banks’ concerns about competition, stablecoins currently represent only a fraction of the $22 trillion US dollar money supply.
The fundamental tension persists: traditional banking’s role in credit creation versus digital assets’ promise of financial innovation.
The stakes extend beyond competitive fairness to systemic stability itself—because when $6.6 trillion starts moving, everyone feels the tremors.
