Community banks urge Senate to close stablecoin reward loopholes

In a letter sent Jan. 5, the American Bankers Association’s Community Bankers Council warned that as much as $6.6 trillion in deposits could be exposed to such incentives, pressuring credit availability for households and small businesses. According to them, some crypto firms route rewards through affiliated exchanges or partners, creating yield-like inducements even though issuers are barred from paying interest. The council asked Congress to make clear that the prohibition applies to issuers, their affiliates, and partners.

“Community banks are the backbone of local economies,” the letter stated. “Allowing inducements like interest or rewards on stablecoins could incentivize customers to move savings out of banks, jeopardizing the lending that fuels growth in towns across America.”

The bankers cited a U.S. Treasury report in estimating that up to $6.6 trillion in deposits could be exposed to yield-style incentives unless Congress adds explicit language to the law. They argue that reward programs tied to stablecoins can operate as de facto interest without stronger protections.

The appeal builds on earlier outreach after the law took effect in July. In August, the ABA, the Bank Policy Institute, and more than 50 state banking associations urged Congress to close loopholes they argue let third parties offer rewards to stablecoin holders. 

Top regulators have taken a measured view. At the American Bankers Association Annual Convention in October Comptroller of the Currency Jonathan Gould noted that a material flight of deposits into stablecoins “would not happen in unnoticed fashion” and “would not happen overnight.” He added that he would act if there were a material flight and encouraged community banks to view digital assets as tools to compete.

Industry executives cautioned that overcorrection could backfire. Coinbase’s policy chief warned that broad limits on stablecoin rewards under ongoing Senate talks, alongside the GENIUS Act’s July ban on issuer-paid interest, could disadvantage U.S. stablecoins, a concern outlined in our Сoinbase review. China lets banks pay interest on e-CNY starting Jan. 1, 2026. On Dec. 18, 2025, more than 125 industry participants urged Congress not to expand the ban. 

Enacted last summer, the GENIUS Act created a federal framework for stablecoins and bars issuers from paying interest to prevent them from acting like bank deposits outside the regulated system. Community banks want Congress to extend the prohibition to affiliated and partner entities and to add clear language limiting reward-based workarounds.