In recent discussions regarding financial regulations, Alabama State Senator Keith Kelley has expressed significant concerns over the implications of the GENIUS Act, enacted on July 18, 2025. This legislation may pose risks for rural community banks by potentially instigating a significant outflow of deposits.
In a compelling op-ed featured in 1819 News, Kelley highlighted how a loophole within the Act could enable cryptocurrency companies to offer lucrative yields that would entice local depositors away from traditional banking systems.
The situation is further compounded as the public comment phase has commenced at the US Treasury, with regulatory bodies poised to draft the operational parameters of this new law.
Understanding the GENIUS Act’s Risks
Financial analysts suggest that the crux of the concern revolves around the concept of “comparable supervision.” If foreign or nonbank stablecoin issuers receive lenient regulatory treatment, depositors might find the high yields from crypto firms too appealing to resist.
Senator Kelley voices concern that the GENIUS Act could undermine small banks, leading to deposit migration. What will be the impact on community welfare? #GENIUSAct #Stablecoin #CryptoLaw pic.twitter.com/BDhqoFNif5
— 4C by 360Trader (@4cby360) September 11, 2025
Banking industry estimates indicate that deposit outflows could soar to an alarming $6.6 trillion if interpreted expansively. Such potential losses have been a source of anxiety for community bank leaders, who depend on stable local deposits to support lending to families, farmers, and local enterprises.
A Looming Rural Banking Turmoil
Community banks often function within narrow profit margins and heavily rely on local deposits to finance loans for various essential needs, from agricultural cycles to small business operations.
Senator Kelley strongly cautioned that these financial lifelines risk being compromised if substantial sums shift towards innovative digital financial products, circumventing traditional banking altogether.
Small business owners and farmers are particularly at risk since local banks frequently offer customized lending solutions that cater to seasonal demand.
GENIUS Act & The Path Forward
As it stands, the GENIUS Act is yet to be fully implemented operationally. The future of its execution hinges on forthcoming rules from the US Treasury and the Federal Reserve, which are currently seeking public input regarding risks and anti-money laundering measures.
Reports indicate that many banking groups and legislators advocate for more stringent definitions and better regulatory frameworks prior to finalizing the rules. Advocates for the GENIUS Act assert it could enhance stability within the stablecoin arena, while critics emphasize the importance of implementing thoughtful regulations.
Should deposits begin to dwindle significantly, smaller banks might find themselves compelled to reduce lending capabilities or increase interest rates to maintain their clientele. Such a shift would likely redirect credit away from local communities, favoring larger financial institutions instead.
Featured image from Brian Lyman/Alabama Reflector, chart from TradingView
