US Treasury unveils proposed rules under GENIUS Act, banking concerns over stablecoin yields persist

The US Department of the Treasury, through the Financial Crimes Enforcement Network (FinCEN) and Office of Foreign Assets Control (OFAC), issued a proposed rule on Wednesday targeting stablecoin issuers under the GENIUS Act.

The proposal applies to permitted payment stablecoin issuers (PPSIs), required to establish and maintain comprehensive anti-money laundering (AML) and counter-terrorism financing (CFT) programs, including risk identification, assessment and mitigation frameworks.

Proposed rules emphasize risk controls for stablecoin issuers

FinCEN indicated it would adopt a measured supervisory approach, reserving enforcement actions for cases involving systemic program failures. The framework also establishes a formal notice-and-consultation process between primary federal PPSI regulators and FinCEN for major AML and CFT supervisory actions.

Issuers would be required to implement robust sanctions compliance programs, including risk-based internal controls, routine auditing and testing. These measures would enable blocking, freezing, or rejecting transactions linked to illicit actors or sanctioned entities, alongside ongoing monitoring of transaction records for related activity.

“This proposal will protect the US financial system from national security threats without hindering American companies’ ability to forge ahead in the payment stablecoin ecosystem,” said Treasury Secretary Scott Bessent.

The proposed rule aligns with the legislation’s January 2027 compliance deadline and opens a 60-day public comment period.

White House report sparks debate over impact of stablecoin yields on banks

In other news, a White House report suggests that stablecoin yield poses limited risk to the traditional banking system. According to an X post by journalist Eleanor Terrett, the analysis, based on current economic models, indicates that concerns around deposit flight may be overstated.

The Council of Economic Advisers (CEA) reportedly found that restricting stablecoin yields would have a minimal impact on preventing deposit outflows and would only marginally increase bank lending. However, early reactions from the banking industry suggest skepticism toward these conclusions.

Sources cited by Terrett indicated that the issue extends beyond the availability of deposits for lending. Instead, banks are more concerned about the structure and stability of funding. These institutions rely heavily on stable retail deposits and have fewer alternatives for sourcing capital.

“Community banks rely more heavily on stable retail deposits and have fewer funding alternatives. If funds migrate into stablecoins or larger institutions, they could feel the impact first, even if aggregate lending appears largely unchanged,” Terrett wrote on X.

Industry participants also noted that deposit flows are not strictly one-to-one. While the report suggests that stablecoin reserves often circulate back into the banking system, they may not return in the same form or with the same stability.