Executive Letter: Immediate Grassroots Action Needed to Close Stablecoin Loophole
By Rose Oswald Poels
Over the past few weeks, I have shared concerns about the rapid expansion of stablecoins and a loophole that threatens the deposit-funded lending model that supports Wisconsin communities. Last week, Wisconsin’s representatives on the ABA Community Bankers Council — Jeff Bowman, Paul Hoffmann, Timothy Schneider, and Meredith Strieff — joined community bank leaders from all 50 states in sending a letter to every U.S. Senator urging immediate action to close the stablecoin interest loophole. Their message reinforces what WBA has been saying all along: Stablecoins must function strictly as payment tools, not as interest-bearing alternatives to bank deposits.
WBA, alongside other state and national trade associations, successfully advocated for changes to the GENIUS Act to prohibit payment stablecoin issuers from paying interest. However, others now argue that a loophole exists allowing them to offer yields, rewards, or incentives that resemble interest through affiliated platforms. If permitted to continue, these inducements will pull deposits away from banks, putting consumers at risk and reducing the availability of lending for homes, small businesses, agriculture, and community development. For our state alone, this will look like a multi-billion-dollar loss in lending capacity — which will be felt heavily in our local economies.
WBA has significantly ramped up advocacy on this matter in recent weeks, including signing onto a new joint letter to the U.S. Senate underscoring the danger this loophole poses to local economies. This is in addition to the 52-state association letter sent to all U.S. Senators in mid-December warning that the loophole will harm economic activity. The crypto industry has reacted accordingly and intensified its messaging, claiming that stablecoin rewards benefit consumers and that banks are over-inflating the risk. Grassroot engagement is critical now because a markup on the bill in the Senate is expected this week. Please encourage your colleagues and staff to contact your U.S. Senators today — Ron Johnson and Tammy Baldwin — using the action tools provided by the American Bankers Association and the Independent Community Bankers of America. A high volume of outreach is essential to counter the crypto industry’s messaging and ensure the voices of community banking are heard.
