The GENIUS Act recently made headlines as the United States’ inaugural legislation for stablecoins, attracting a wide range of attention from the cryptocurrency community. Yet, major banking organizations nationwide are voicing concerns about inherent risks that could emerge and affect the stability of the financial landscape.
Concerns Over Potential Weaknesses in Stablecoin Regulations
A detailed document sent to the Senate Banking Committee highlighted these apprehensions, with banking groups from all states urging the swift implementation of amendments to remediate several critical uncertainties.
In their message, the organizations stressed the need for a robust and transparent regulatory environment for digital assets. They pointed out that decisions made today could shape the future structure, efficiency, and equity of the financial system for generations.
A major recommendation revolves around enhancing restrictions on interest payments tied to stablecoins. Although the Act forbids issuers from offering returns, the letter warns that exchanges may find ways to bypass this ban, offering incentives to stablecoin holders.
The associations believe these activities could distort market behavior and impede the traditional credit creation process by shifting deposits into stablecoins that promise higher yields.
To ensure the integrity of the banking ecosystem and its critical role in facilitating credit, these groups are advocating for an expansion of the interest prohibition to cover all parties involved, including exchanges and brokers. They argue this modification will not only protect the financial system but also enable safe advancement in digital payment technologies.
Advocating for Enhanced Oversight in Financial Operations
Another key area of concern specified in the letter refers to Section 16(d) of the GENIUS Act. This provision permits uninsured out-of-state financial entities, like Special Purpose Depository Institutions (SPDIs), to function without state-level approval.
The banking groups are challenging this provision, claiming it threatens the dual banking system crucial for safety and stability across state boundaries. They suggest repealing this section to reinforce state governance in the licensing process, thereby enhancing consumer protection and maintaining fair competition.
Furthermore, the associations have pressed for closing “gaps” that enable non-financial firms to become stablecoin issuers. They emphasize that the historical separation between banking and commerce has fortified the integrity of the American financial framework against conflicts and excessive power centralization.
While the GENIUS Act forbids stablecoin issuance by public companies outside financial sectors, it provides potential exceptions that have raised eyebrows. The banking advocates caution that permitting these exceptions may lead to regulatory loopholes and further complicate the oversight landscape.
Image courtesy of DALL-E, chart derived from TradingView.com
