Wall Street & Advocates Unite Against US Stablecoin Law

Unlikely Allies Challenge Stablecoin Legislation

A recently enacted U.S. stablecoin law, the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, is facing pushback from an unexpected coalition: Wall Street and consumer advocacy groups. Concerns center on provisions that could potentially destabilize the existing financial landscape.

President Trump previously hailed the GENIUS Act as a major step forward for regulated stablecoins in the U.S. However, the American Bankers Association, alongside other banking lobbies, has joined forces with Americans for Financial Reform and the National Consumer Law Center to advocate for revisions.

Key Concerns Outlined

The core of the dispute lies within a section of the GENIUS Act that permits stablecoin-issuing subsidiaries of state-chartered uninsured depository institutions to conduct money-transmission and custody services nationwide. Critics argue that this bypasses established state licensing and oversight mechanisms.

• Regulatory Arbitrage: The coalition's letter to U.S. senators stresses that ignoring state laws could invite regulatory arbitrage, granting special privileges to uninsured depository institutions without the regulatory and supervisory requirements imposed on federally insured banks.

Potential Loss of Deposits

Bank lobbyists are also raising concerns about a potential loophole allowing crypto firms to indirectly offer returns on stablecoins. While the GENIUS Act prohibits stablecoin issuers from offering interest directly, affiliates or exchanges might do so. This could trigger a significant outflow of deposits from traditional banks and money-market funds.

• Impact on Lending: Banks rely on deposits to fund loans. A significant decrease in deposits could negatively affect lending to American businesses and families.

Coinbase Responds

Faryar Shirzad, Chief Policy Officer at Coinbase, countered the banks' position on social media. He argued that Congress should not restrict consumer choice or limit opportunities for individuals to earn returns on their assets. Shirzad also questioned the validity of the estimated $6 trillion in potential deposit outflows.

What's Next?

While the GENIUS Act has been signed into law, broader legislation concerning U.S. crypto markets is still under consideration. The Digital Asset Market Clarity Act, already passed by the House of Representatives, could potentially reshape aspects of the stablecoin law, even before regulators finalize the rules. The current alliance between bankers and consumer advocates highlights the complexity and high stakes involved in regulating stablecoins.

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