In Washington, DC, lawmakers are grappling with the future of digital assets and how best to integrate emerging technologies into the financial system. Among these efforts is the GENIUS Act, which aims to define a rapidly evolving corner of finance by regulating stablecoins, digital tokens pegged to the US dollar. Stablecoin regulation is necessary, but the law has loopholes that threaten the financing that allows small towns and rural areas like Alabama and across the country to thrive: community bank deposits.
The core of the GENIUS law is that it legitimately prohibits stablecoin issuers from paying interest or yield on their tokens. why? Because if stablecoins offer attractive returns, they could lure money out of traditional bank accounts and undermine the deposit base that allows banks to lend to families, farmers, and small businesses. This provision reflects the important understanding that deposits are more than just numbers in an account. These are the foundation of regional financing and economic growth.
However, the law as currently written leaves the door open for crypto platforms and exchanges to effectively pay “backdoor” yield on stablecoins through affiliate arrangements, rewards programs, or incentives tied to balance size, without the stablecoin issuer technically paying any interest. Allowing such “backdoor” yields makes it easier for stablecoins to imitate bank accounts and earn higher rewards, but stablecoins are not banks and such behavior should not be allowed. These high-yield rewards will encourage people to move their community bank savings into stablecoins.
Community bankers across the country are sounding the alarm that this loophole undermines the very intent of the law passed by Congress. The stakes couldn’t be higher. The Bankers Association estimates that up to $6.6 trillion in bank deposits could be at risk if digital assets with perks were used to withdraw funds from traditional bank accounts. This potential capital movement will have a direct impact on the availability of financing here at home.
In the United States, community banks provide 60 percent of small business loans and 80 percent of agricultural loans. This is a critical lifeline for small businesses and family farms that are often overlooked by big banks. Imagine a farm in rural Alabama turning away their idea not because it has no merit, but because the local bank’s deposit base is eroding as customers pursue digital token rewards. Imagine a mom-and-pop cafe unable to add seating because local liquidity evaporates and credit tightens. These are the real-world consequences of regulatory oversight that fails to protect the fundamentals of community banking.
This is not an argument against innovation. Engaging responsibly with digital assets can benefit consumers and the broader economy, but innovation should not stand in the way of small businesses and working families’ success. Policymakers can and should close loopholes that prevent stablecoin platforms from indirectly paying yield or drawing essential deposits away from insured banks. I am confident that Sen. Katie Britt will continue to fight for community banks as the Senate Banking Committee debates upcoming crypto legislation and encourages her colleagues to do the same.
The decision in the Senate is clear. That means strengthening the GENIUS Act to deliver on its promise to foster innovation and financial stability. Doing so protects the fabric of our communities and ensures that community banks remain strong partners in local economic growth.
