The GENIUS Act Clock Is Ticking: Banks Fear Stablecoins Could Drain Their Deposits  

The Office of the Comptroller of the Currency is currently in the process of writing the rules that will give the GENIUS Act practical force.

When the US Congress passed the GENIUS Act in July 2025, the first comprehensive federal framework for payment stablecoins, it was presented as long-overdue regulatory clarity. Stablecoin issuers would back their tokens one-to-one with safe assets like US Treasuries or central bank reserves. Direct yield payments to holders would be banned to prevent capital flight out of the banking system. It was an order which was assumed to have been established.  

Almost a year later, the framework has produced something closer to organised conflict. Banks and crypto firms are fighting over what the law actually means, regulators are wading through hundreds of pages of competing comment letters, and behind the procedural noise sits a question with genuinely large stakes of whether stablecoins will hollow out the deposit base that has underpinned bank lending for a century.  

The law’s architects designed the yield prohibition as a firewall. Logically, if stablecoin issuers cannot pay interest on their holdings, there is no financial incentive for consumers or businesses to move money out of bank deposits and into digital tokens.  

The Office of the Comptroller of the Currency is currently in the process of writing the rules that will give the GENIUS Act practical force. It proposed a framework that bars platforms from paying yield on stablecoins held in custody, but includes a “rebuttable” standard enabling issuers to challenge that prohibition if they can demonstrate that their third-party arrangements do not functionally violate it. This carve-out has become the epicentre of the dispute.  

Crypto firms, publicly led by Coinbase, argue that the law only prohibits the issuer itself from paying yield directly to consumers. Rewards offered by third parties like affiliates, distribution partners, or related entities that are technically distinct from the issuer should remain permissible. Coinbase pressed the OCC to take a minimalist interpretation, arguing that broadening the prohibition to cover indirect arrangements would exceed the statute’s intent and constrain competition in payments.  

Banks see it differently, and in stark terms. A joint letter from the Bank Policy Institute, the Consumer Bankers Association, and the Financial Services Forum demanded that the OCC explicitly prohibit any economic benefit tied to holding stablecoins, whether paid directly or routed through intermediaries. They argue that if the economic outcome is functionally equivalent to yield, the legal structure of the delivery is irrelevant. The GENIUS Act’s goal was to prevent stablecoins from behaving like interest-bearing deposits in practice, and creative third-party arrangements accomplish exactly that.  

Community banks have put figures to the threat, and they are significant enough to explain the lobbying intensity. The Independent Community Bankers of America submitted estimates to the OCC suggesting that even with the yield prohibition strictly enforced, a mature stablecoin market of roughly $1.2 trillion could reduce lending at community banks by approximately $141 billion, or around 4% of their total loan book. If stablecoin issuers are permitted to circumvent the prohibition through third-party rewards and the market grows accordingly, that lending impact could reach $850 billion, roughly one in five dollars currently lent by community banks to farms, small businesses, and local borrowers.  

The White House‘s Council of Economic Advisers offered a counterpoint in April 2026, estimating that a full yield prohibition would increase aggregate bank lending by just $2.1 billion, a 0.02% change. While imposing a net welfare cost of $800 million annually on consumers, denying the benefit of competitive returns.  

Both sets of figures contain embedded assumptions about how large the stablecoin market ultimately becomes. The market is already substantial, and the global fiat-backed stablecoin supply exceeded $273 billion in March 2026. Stablecoin transaction volumes grew 91% in 2025 to $10.9 trillion, rivalling Visa‘s annual processing volume, with payments volume doubling to $400 billion, roughly 60% of which was B2B.  

TD Cowen policy analyst Jaret Seiberg cut through the legislative optimism with a blunt assessment that he does not see a middle ground that would satisfy the banks and the major crypto platforms, as they believe some crypto platforms want the ability to keep paying yield to encourage retail investors to keep their liquidity in their crypto wallets. His fallback prognosis, if the broader CLARITY Act stalls in Congress, means that the OCC’s implementing rule becomes the de facto resolution, and the outcome of that rule will depend heavily on whether the agency holds the broad reading banks are demanding or accommodates the narrower interpretation crypto firms favour.