REGULATION | Why U.S Banks Want the Ban on Stablecoin Yields Extended to 3rd Party Entities

United States banking groups are escalating a coordinated campaign to stall the Senate’s progress on the CLARITY Act, zeroing in on a narrow but consequential regulatory gap left open by last year’s GENIUS Act: who, exactly, is allowed to pay yield on stablecoins.

More than 3,000 banks, led by the American Bankers Association, have funded advertising and lobbying efforts urging lawmakers to “close the stablecoin loophole,” arguing that current draft language would allow crypto platforms to sidestep existing restrictions on interest-like payments.

At the center of the dispute is a structural ambiguity in the GENIUS Act, signed into law in 2025. While the legislation explicitly prohibits stablecoin issuers from offering yield to holders, it does not clearly extend that ban to affiliated entities or third-party platforms – a gap now shaping the fate of broader crypto market legislation.

Banking groups argue that this omission creates a workaround whereby exchanges or partners could offer rewards tied to stablecoin balances, effectively replicating interest-bearing accounts outside the traditional banking system.

“That is the substance behind the word ‘loophole,’” one policy analysis noted, describing how such structures could allow crypto firms to compete directly for deposits without being subject to bank regulation.

The industry is pushing lawmakers to amend the CLARITY Act to explicitly ban yield-like incentives not just from issuers, but also from affiliates and third parties – closing what regulators and legal analysts have increasingly referred to as the ‘affiliate loophole.’

Banks warn that leaving the gap unaddressed could accelerate deposit outflows from traditional lenders into crypto platforms offering higher returns. Some industry estimates suggest trillions of dollars in deposits could be at risk if stablecoin-based rewards scale.

Crypto firms, however, argue the banking sector is attempting to re-litigate settled provisions by expanding restrictions beyond the GENIUS Act’s original scope. They maintain that allowing rewards – particularly those tied to platform activity rather than passive holding – is essential for innovation and user adoption.

The White House has further complicated the debate. A recent analysis by the Council of Economic Advisers found that banning stablecoin yield would have only a marginal impact on bank lending – increasing it by roughly $2.1 billion, or 0.02% – while imposing broader costs on consumers.

The disagreement has become the primary bottleneck for the CLARITY Act, a sweeping bill intended to define federal oversight of digital asset markets. Despite strong bipartisan support in the House, the Senate has delayed moving the legislation forward as negotiations over the yield language continue.

Lawmakers are now effectively deciding whether stablecoins should remain strictly non-yielding payment instruments, as envisioned by banks, or evolve into yield-generating financial products through affiliated platforms, as supported by parts of the crypto industry.

With the legislative calendar tightening ahead of the election cycle, the unresolved loophole has become more than a technical detail – it is now the central fault line determining whether the CLARITY Act advances at all.

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