Debate over allowing stablecoin interest payments intensifies… Wall Street warns of “bank-run risk” vs industry saying “let the market decide”

Reports say a clash between the US financial sector and the digital-asset (crypto) industry is intensifying over whether stablecoins should be allowed to pay interest. The question of whether to permit interest payments is emerging as a key issue that will shape the future direction of stablecoin regulation.

According to the Financial Times (FT) on the 2nd (local time), major Wall Street banks are voicing concerns that if crypto exchanges pay interest to stablecoin holders, they would in effect be performing the same role as banks, potentially undermining financial stability. They argue that allowing exchanges to pay interest could trigger a bank-run scenario in which deposits migrate to exchanges.

The crypto industry, meanwhile, counters that banks are exaggerating the risks to avoid competition. It argues that banning interest payments would stifle financial innovation and that customer choice should be left to the market.

The debate traces back to the GENIUS Act, a stablecoin institutionalization bill enacted last year. The law barred stablecoin issuers from paying interest, but did not set clear rules for exchanges. Banks view this as a regulatory loophole and are calling for additional legislation to impose a blanket ban on interest payments.

The pending Senate “Clarity” bill is at the center of the dispute. The bill aims to establish an overarching regulatory framework for the US digital-asset market.

Banks say exchanges offer interest of around 3–5%, while deposit rates at commercial banks are below 0.1%, highlighting what they see as an imbalance. The US Treasury has previously estimated that if interest payments persist, bank deposits worth trillions of US dollars could shift into the digital-asset market.

The crypto industry is pushing back, saying banks should compete on rates or participate directly in stablecoin businesses. Some industry figures have publicly criticized the debate, saying that if regulation is misguided, it would be better not to legislate at all.

Meanwhile, the financial sector and the crypto industry are set to continue related discussions in Washington this week. However, some observers say the outlook remains uncertain, as the banking sector’s strong lobbying clout intersects with President Donald Trump’s presence, seen as favorable to fostering the digital-asset industry.