"Block coin interest"… American Bankers Association declares all-out war on stablecoins

The US banking industry has launched a broad offensive to prevent stablecoins from paying interest. The move reflects fears that if crypto assets (cryptocurrencies) replace bank deposits, regional banks’ lending function could be crippled.

On the 20th (local time), the American Bankers Association (ABA) said in a statement that "we must prevent payment stablecoins from becoming substitutes for bank deposits," adding that "the payment of interest or rewards for holding stablecoins should be comprehensively prohibited not only by issuers but on any platform."

The push is seen as an effort to close loopholes in the GENIUS Act passed last year. Under current law, stablecoin issuers are barred from paying interest directly. However, the banking industry argues that regulatory gaps remain that allow returns to be provided indirectly through third-party platforms or decentralized finance (DeFi).

ABA President Rob Nichols said, "This priority is the result of incorporating the views of banks and companies of all sizes and types."

Banks are reacting sensitively to interest-bearing stablecoins because of concerns over massive outflows of funds. If bank deposits move en masse into stablecoins in pursuit of interest income, banks’ funding costs would rise, inevitably reducing their capacity to extend loans to households and businesses.

Bank of America (BoA) Chief Executive Officer (CEO) Brian Moynihan previously warned that "as much as $6 trillion could move from banks into interest-paying stablecoins."

The ABA said, "If stablecoins encroach on deposits, the competitiveness of community banks that supply funds to local communities will weaken, and banks’ role in the financial system will shrink," adding that "strong additional regulation is needed."