Community Banks Warn Senate About Stablecoin Risks to Local Loans
The council said crypto firms are using loopholes to offer rewards, which could put bank deposits and loans at risk. Key Highlights Community banks warned the U.S. Senate that...
The council said crypto firms are using loopholes to offer rewards, which could put bank deposits and loans at risk.
Key Highlights
- Community banks warned the U.S. Senate that stablecoins could draw deposits away from local banks.
- Crypto firms are using loopholes to give rewards or indirect interest, risking local lending.
- Up to $6.6 trillion in deposits could be at risk, which threatens loans for families and small businesses.
The American Bankers Association’s Community Bankers Council, which speaks for community banks in all 50 U.S. states and territories, has urged the U.S. Senate to take action to protect local economies from risks linked to stablecoins.
In a letter sent to Senators, the council said over 200 community bank leaders have warned that some crypto firms are using gaps in the rules to bypass the GENIUS ACT, which was passed into law last year by President Donald Trump to regulate stablecoins.
The council explained that while the law stops stablecoin companies from paying interest to customers, some firms are getting around the rules by giving indirect rewards through partners or affiliates. These could encourage people to move their savings out of local banks.
Community banks use deposits to give loans to families, farmers, and small businesses. If deposits leave, banks may have less money to lend, which could slow down local growth.
“Community banks are the backbone of local economies,” the letter said. “Allowing inducements like interest or rewards on stablecoins could incentivize customers to move savings out of banks, jeopardizing the lending that fuels growth in towns across America.”
Risk to local economies and credit
The letter warned that without clear legislative rules put in place, up to $6.6 trillion in deposits could be at risk, which could potentially threaten the availability of credit nationwide.
Along with the letter, the ABA council also submitted a detailed state-by-state analysis showing potential deposit outflows and the resulting loss in local lending. This data indicated how widespread the risk could be if stablecoin companies continue to find ways around existing regulations.
ABA’s Community Bankers Council is calling on Congress to clarify in upcoming market structure legislation that the interest prohibition should apply not only to stablecoin issuers but also to their affiliates and partners. The letter warned that anything less could endanger economic growth and the financial stability of local communities.
Also Read: Seoul Pushes Stablecoin Bill, Gives Government December Ultimatum
Iyiola is an experienced crypto writer specializing in simplifying complex blockchain and cryptocurrency topics for a broad audience. With expertise in ICOs, DeFi, NFTs, and regulatory updates, he offers valuable insights to help readers make informed decisions.
Jahnu Jagtap is a Research Analyst with over 5 years of experience in crypto, finance, fintech, blockchain, Web3, and AI. He holds a BSc in Mathematics and is certified in Blockchain and Its Applications (SWAYAM MHRD), Cryptocurrency (Upskillist), and NISM Certifications. Jahnu specializes in technical, on-chain, and fundamental analysis, while also closely tracking global macro trends, regulations, lawsuits, and U.S. equities. With a strong analytical background and editorial insight, he drives content that delivers clarity and depth in the fast-evolving world of digital finance.
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