In Washington D.C., lawmakers are wrestling with the future of digital assets and how best to integrate emerging technologies into our financial system. Among these efforts is the GENIUS Act, a law that aims to bring clarity to a fast-evolving corner of finance by regulating stablecoins, digital tokens pegged to the U.S. dollar. While regulation of stablecoins is necessary, this law has a loophole that threatens the financing that allows small towns and rural communities like those in Alabama and across America to prosper—community bank deposits.
At its core, the GENIUS Act rightly prohibits stablecoin issuers from paying interest or yield on their tokens. Why? Because if stablecoins offered enticing returns, they could lure funds away from traditional bank accounts, undermining the deposit base that allows banks to lend to families, farmers and small businesses. That provision reflects a critical understanding: deposits are not just numbers in an account. They are the foundation of local lending and economic growth.
Yet the law as currently written leaves the door open for crypto platforms and exchanges to effectively pay “backdoor” yields on stablecoins through affiliate arrangements, rewards programs or incentives tied to balance size, all without the stablecoin issuer technically paying interest. Allowing these “backdoor” yields facilitates stablecoins mimicking bank accounts with higher rewards, but stablecoins are not banks and should not be permitted to act as such. These high-yield rewards would push people to move their deposits from community banks into stablecoins.
Community bankers nationwide have sounded the alarm that this loophole undermines the very intent of the law Congress passed. The stakes could hardly be higher. According to estimates by banking associations, up to $6.6 trillion in bank deposits could be at risk if digital assets with reward features pull funds out of traditional bank accounts. This potential shift of capital would directly affect loan availability here at home.
Community banks provide 60 percent of small-business loans and 80 percent of agricultural lending in the U.S., which is a critical lifeline for small businesses and family farms that larger banks often overlook. Imagine a farmer in rural Alabama turned away not because their idea lacks merit, but because their local bank’s deposit base has eroded as customers chase digital token rewards. Imagine a mom-and-pop café unable to expand seating because credit tightened when local liquidity evaporated. These are the real-world impacts of regulatory oversights that fail to protect the fundamentals of community banking.
This is not an argument against innovation. Responsible involvement in digital assets could benefit consumers and the broader economy, but innovation should not get in the way of the success of our small businesses and working families. Policymakers can and should close the loophole so that stablecoin platforms cannot pay yield indirectly and draw essential deposits away from insured banks. I am confident that Senator Katie Britt will continue to fight for our community banks as the Senate Banking Committee debates any upcoming crypto legislation and encourages her colleagues to do the same.
The decision before the Senate is clear: strengthen the GENIUS Act so it lives up to its promise of fostering innovation and financial stability. Doing so will protect the fabric of our communities and ensure that community banks remain strong partners in local economic growth.
