Bank Lobby Urges Congress to Ban Interest-Bearing Stablecoins Under GENIUS Act

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• The Banking Policy Institute warns stablecoins could drain deposits and raise borrowing costs.
• Crypto advocates argue interest-bearing stablecoins empower users with better financial tools.
• GENIUS Act’s wording leaves loopholes, setting up a policy clash between banks and crypto.

The fight over stablecoin regulation in the U.S. is heating up, with the Banking Policy Institute (BPI) urging Congress to amend the recently passed GENIUS Act. The influential lobby group, chaired by JPMorgan CEO Jamie Dimon, argues that loopholes in the bill could allow interest-bearing stablecoins — a development it says threatens the traditional banking system.

Banks Warn of Credit Risks

In a letter to lawmakers, the BPI cautioned that stablecoins offering interest could siphon deposits away from banks. Since deposits underpin lending, a shift toward stablecoins could reduce available credit, raise borrowing costs, and tighten conditions for businesses and households. The group labeled issuer-paid interest “inherently dangerous,” likening it to unregulated shadow banking that could create liquidity risks and undermine financial stability.

Industry Pushes Back

Crypto leaders see the issue differently. Coinbase CEO Brian Armstrong and others argue that interest-bearing stablecoins empower users, offering financial tools beyond what banks provide. Legal experts point out that the GENIUS Act’s ban on interest tied “solely” to stablecoin holdings leaves room for partnerships between issuers and exchanges — meaning the prohibition may not be airtight. “The word ‘solely’ is a powerful legal limiter,” said attorney Aaron Brogan, suggesting the law is porous by design.

Also Read: The GENIUS Act Explained: A New Era for U.S. Stablecoin Regulation

Policy Stalemate in Washington

While the banking industry wields considerable influence, many observers believe it may be too late to alter the law. Jake Chervinsky, chief legal officer at Variant, noted that GENIUS already reflected compromises with banks and further changes are unlikely in this Congress. Some compare the pushback to music executives resisting digital music, arguing that stablecoins represent a more efficient financial alternative that users will adopt regardless of lobbying pressure.

The Road Ahead

The debate underscores a larger clash: whether stablecoins should remain strictly payments-focused or evolve into interest-bearing assets. For banks, the outcome directly affects their business model. For crypto advocates, it’s about innovation and financial choice. As Andrew Rossow, a policy attorney, noted, lobbying battles risk creating regulatory gridlock, leaving markets uncertain and consumers caught in the middle.

Whether the GENIUS Act stands firm or faces revisions, one thing is clear: stablecoins are no longer a fringe issue — they’re shaping the future of money in the U.S.

Disclaimer: The information in this article is for general purposes only and does not constitute financial advice. The author’s views are personal and may not reflect the views of Chain Affairs. Before making any investment decisions, you should always conduct your own research. Chain Affairs is not responsible for any financial losses