Some U.S. banks are panicking over a growing threat: stablecoins. They’re not worried about volatility or speculation; they’re worried about losing trillions in customer deposits.
This week, that anxiety got louder after lawmakers in Washington passed the GENIUS Act, a bill that lays out legal rules for stablecoins in the U.S. The House of Representatives approved the bill on Thursday with a 308-122 vote, and it just got signed into law by President Donald Trump.
The reason banks are tense isn’t complicated. They’re staring down the possibility of a serious cash drain. A Treasury Department report released in April warned that stablecoins could cause up to $6.6 trillion in deposit outflows, depending on whether issuers are allowed to offer returns that match or beat bank accounts.
Banks know that payments are their turf, and cross-border transfers, in particular, are vulnerable. These transfers currently take days and involve high fees. Stablecoins don’t have those problems.
Banks try to block stablecoin incentives
Even though the GENIUS Act bans stablecoin issuers from paying interest, banks aren’t convinced that’s enough. They’re watching crypto companies experiment with ways to reward holders anyway. Coinbase, for example, gives customers a 4.10% reward for holding USD Coin (USDC). That coin is issued by Circle, which also splits the yield it earns from government-backed securities with Coinbase.
Critics say this looks almost identical to paying interest. Coinbase insists it’s not the same thing and claims the rewards program is separate from its deal with Circle. Still, that hasn’t stopped banks from raising alarms. The Independent Community Bankers of America sent a letter this week to House leadership asking them to tighten the rules so that firms can’t skirt the law with clever wording.
The GENIUS Act’s passage is just the first step. Federal regulators still need to decide how much capital stablecoin issuers must hold. That’s another area where banks feel exposed. If stablecoin issuers don’t face the same capital or liquidity requirements, they could operate with less oversight while pulling in more money.
Fed access becomes a flashpoint for regulators
The question of Federal Reserve access is also heating up. Right now, only banks get to use the Fed’s backstop tools during market stress. But the GENIUS Act doesn’t block nonbanks from accessing the Fed, which means the decision falls to the Fed itself. That’s a problem for banks because they argue that anyone getting access to the Fed’s benefits should also face the same rules they do.
If consumers start pulling cash out of FDIC-backed accounts and putting it into stablecoins, the money might still end up in a bank, but in a single account that’s too large to be insured under the $250,000 FDIC limit.
That creates a layer of risk that didn’t exist before. And if fewer people keep their money in traditional bank accounts, banks will have a harder time making loans, especially to smaller businesses and households. That’s why banks argue the Fed needs to step in and level the playing field before stablecoins get too far ahead.
Even with the risks, not all banks are fighting this trend. Some of the largest banks in the U.S. are exploring the idea of launching their own stablecoin through a joint effort. They want to control the rails rather than get left behind. The thinking is that if Walmart, Amazon, and other multinationals are going to experiment with launching stablecoins, and they are, then banks need their own token to stay in the race.
Payment companies are watching too, but they don’t seem nearly as stressed. Just today, Mastercard described stablecoins as “enabling faster, lower-cost cross-border payments,” a clear sign that they’re more interested in integration than competition.