GENIUS Act Opens $6.6 Trillion Deposit Battle for Banks

The US stablecoin market now has a federal rulebook, and traditional banks are quantifying the cost. The GENIUS Act, signed into law on July 18, 2025, creates the first comprehensive federal framework for payment stablecoins. It passed the Senate 68-30 and the House 308-122, making it one of the most bipartisan crypto bills in US history. Banks have already estimated that up to $6.6 trillion in deposits could be at risk of outflows due to competition from nonbank stablecoin issuers.

The GENIUS Act: What Changed

The law allows certain nonbank fintech companies and crypto firms to issue stablecoins under federal and state regulatory oversight. Issuers must maintain 1:1 reserves backed by cash, short-term Treasuries, and repurchase agreements. They are also barred from paying interest on their tokens.

The OCC Charters and the New Playing Field

The Office of the Comptroller of the Currency has already moved to implement the framework. As of December 2025, it granted conditional national trust bank charters to Circle, Paxos, and three other firms. The US Treasury proposed AML and sanctions compliance rules for permitted issuers in April 2026, and the FDIC is advancing its own proposals on application standards for nonbank stablecoin issuers.

Structural Advantages That Remain

Traditional banks retain two structural advantages that stablecoin issuers do not have: FDIC insurance and the ability to lend customer deposits. Stablecoin issuers, under the GENIUS Act, cannot lend reserves. They park them in safe assets and sit on them.

The $6.6 Trillion Exposure

Despite lacking those two powers, stablecoin issuers compete directly for the same pool of consumer and business funds that currently sit in bank deposit accounts. Banks have estimated that up to $6.6 trillion in deposits could be at risk of outflows. That figure represents roughly one-third of all US bank deposits.

The Simple Read vs. The Better Market Read

The simple read: stablecoins now have a federal framework, banks are worried, and deposit outflows will accelerate. The better market read: the prohibition on interest payments is the detail to watch most closely. If that restriction ever gets loosened through future legislation or regulatory reinterpretation, the competitive threat to bank deposits goes from theoretical to acute. Stablecoin issuers would then be able to offer yield on tokens, directly competing with bank savings accounts.

Regulatory Implementation Timeline and Gaps

The law is signed, the full regulatory architecture is still under construction. The OCC charters are conditional. The Treasury AML rules are proposed, not final. The FDIC proposals are advancing, not yet codified.

What Would Reduce the Risk

Strict enforcement of the no-interest rule through explicit regulatory guidance and audits.
High compliance costs that limit stablecoin issuance to a few well-capitalized players, reducing competitive pressure on banks.
Slow state-level adoption of the federal framework, creating a patchwork that deters institutional participation.

Affected Assets and Second-Order Effects

Stablecoin Market Structure

The GENIUS Act legitimizes the existing stablecoin leaders. USDC (Circle) and USDP (Paxos) gain a regulatory moat. Smaller issuers that cannot meet reserve and compliance requirements may be squeezed out. The market could consolidate around federally chartered issuers.

Bank Stocks and Regional Banks

Regional banks with high deposit concentrations are most exposed. The $6.6 trillion estimate covers all banks, smaller institutions with less diversified funding sources face the highest risk of deposit flight. Bank stocks could face valuation pressure if stablecoin adoption accelerates.

Treasury Market Demand

Stablecoin reserves must be held in cash, short-term Treasuries, and repos. Every dollar that moves from a bank deposit into a stablecoin effectively shifts demand from bank lending to Treasury bills. That could put downward pressure on short-term Treasury yields and reduce bank loan supply.

The No-Interest Rule as a Structural Moat

This is the single most important provision in the GENIUS Act for competitive dynamics. Stablecoin issuers cannot pay interest. Bank deposits can. That difference keeps stablecoins as a payments and settlement tool rather than a savings vehicle. If that rule changes, the $6.6 trillion estimate becomes a floor, not a ceiling.

Practical Rule for Traders

Track any legislative proposal or regulatory guidance that touches on interest-bearing stablecoins. A single sentence in a future Treasury rule or a new bill could redefine the competitive landscape. Until then, the GENIUS Act is a net positive for stablecoin issuers, a contained threat to banks.

What to Watch Next

FDIC final rule on nonbank stablecoin issuer applications – expected in late 2026.

Treasury final AML rule – could impose additional compliance costs that narrow the issuer pool.

State-level reactions – New York and California may impose stricter requirements, creating a two-tier market.

OCC charter expansion – if the OCC grants charters to more than the initial five firms, the competitive pressure on banks intensifies.

The GENIUS Act ends the regulatory gray zone for stablecoins, it does not end the debate. Banks have a clear estimate of the deposit risk. Stablecoin issuers have a clear path to federal legitimacy. The next move belongs to regulators and Congress, and the no-interest rule is the pivot point.