Loophole in stablecoin bill threatens small Idaho banks | Opinion

In towns across Idaho, community banks aren’t just financial institutions; they are the backbone of local economies. We finance the farms, small businesses and families working toward the American dream. But today, an unintended policy loophole in Washington threatens to undermine that entire system.

The issue lies within the recently passed GENIUS Act. The intention of the GENIUS Act was to establish guardrails for stablecoins, a type of cryptocurrency intended to maintain a stable value. On paper, the law prohibits stablecoin issuers from paying interest or yield to users. But a loophole allows other platforms and exchanges to offer “rewards” that function exactly like interest — the type of payment the GENIUS Act sought to prohibit.

That distinction may sound technical, but the consequences are anything but.

If left unaddressed, this loophole will incentivize consumers to withdraw funds from traditional bank deposits and move them into stablecoins. According to analysis from the Federal Reserve Bank of Kansas City, for every $1 that shifts from a bank deposit into a stablecoin, bank lending could decline by roughly 50 cents. Scaled across a growing market, the implications are staggering: a projected expansion of stablecoins from $250 billion to $900 billion could translate into a $325 billion reduction in loans to the U.S. economy.

That’s not abstract. That is fewer operating loans for Idaho farmers. Fewer small business expansions. Fewer mortgages for working families.

Even more concerning, the U.S. Department of the Treasury has warned that as much as $6.6 trillion in bank deposits could ultimately be at risk. At a time when rural communities already face challenges accessing affordable credit, we cannot afford to drain liquidity from the very institutions that serve them best.

Community banks will feel this first.

Community banks rely on local deposits to fund local lending. If those deposits begin to migrate to stablecoin platforms offering backdoor interest payments, banks will be forced to compete. That means higher borrowing costs for customers and tighter credit conditions for small businesses.

Meanwhile, major players in the crypto space are already moving to exploit this gap. Companies have made clear that rewards programs tied to stablecoin holdings are central to their business models. In other words, the workaround isn’t theoretical—it’s already happening.

Idaho’s bankers understand the importance of modernization and competition. But innovation must operate on a level playing field and in accordance with the law’s intent. Allowing stablecoin issuers and their affiliates to continue to offer rewards without the same regulatory framework undermines our financial stability.

Congress must finish the job.

Completely closing this loophole is about protecting banks and the flow of credit that fuels local economies.

In Idaho, we know that strong communities depend on strong local banks. Washington should act now to make sure that remains true.

Carlan McDaniel is the executive vice president and chief operating officer at The Bank of Commerce and serves as chair for the Idaho Community Bank Committee.

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