Stablecoin loophole threatens lending by Kansas community banks

Doug Wareham, Special to The Capital-JournalSat, May 16, 2026 at 9:01 AM UTC

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Doug Wareham

Over two decades working directly with Kansas banks, I’ve seen how local deposits fuel community growth. Kansans count on community banks to finance farms, businesses and first homes. It’s a connection that’s easy to miss but vital to keeping our communities growing.

That is why a gap in the recently passed GENIUS Act deserves more attention.

Congress moved quickly to establish rules for stablecoins, recognizing both the promise and the risks of digital assets. But a loophole in the law now threatens to undercut one of the most important parts of our financial system: the flow of credit to local communities.

The issue is straightforward. While the new law prohibits stablecoin issuers from paying interest directly, it leaves room for affiliated platforms to offer “rewards” that function much the same way. In practice, this creates a new category of deposit-like products operating outside the safeguards that apply to banks.

Companies like Coinbase and PayPal are already moving ahead with these programs, with executives acknowledging that incentives for holding stablecoins are central to their models.

Some in Congress are currently promoting a so-called compromise. Unfortunately, the exemptions that have been built into the proposed language fall short. The goal has always been to address the concern of deposits leaving the local community because of paying yield on stablecoins. This may sound like a niche technical issue, but the impact is real. It is crucial that Congress get this right.

Deposits are the foundation of bank lending. When they leave the system, lending capacity leaves with them. The Treasury Department has warned that as much as $6.6 trillion in U.S. bank deposits could be at risk if these incentives expand unchecked.

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Research from the Federal Reserve Bank of Kansas City shows that every dollar that leaves banks can reduce lending by around 50 cents. If the stablecoin market grows as projected, that shift could mean as much as $325 billion in fewer loans to American households and businesses.

For Kansas, that translates into real consequences.

Community banks across our state are the primary lenders to small businesses, farmers and families. When deposits migrate to stablecoin platforms, the lending capacity on which Kansas communities depend begins to shrink. The effects would be felt most in rural communities, where community banks are often the primary source of credit.

Unlike community banks, stablecoin platforms have no obligation to reinvest in the communities they serve.

Kansas bankers are not asking Congress to slow crypto innovation, but we are urging federal lawmakers to act swiftly and permanently to close this rewards loophole, ensuring there are no avenues at all for stablecoins to offer yield. This isn’t about picking winners; it’s about ensuring a level playing field, something vital to the health of Kansas communities. The loophole puts that balance at risk.

Doug Wareham is the president and CEO of the Kansas Bankers Association.

This article originally appeared on Topeka Capital-Journal: Stablecoin loophole impacts Kansas community banks

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