US banks are raising alarm bells about a loophole in the GENIUS Act, a law passed in 2025 aimed at preventing stablecoins from being confused with traditional bank deposits. The act restricts issuers of stablecoins, like Circle and Paxos, from paying interest to their holders. But the rule only targets issuers. In contrast, platforms like Coinbase and PayPal can still offer lucrative yields to customers on stablecoin holdings. Coinbase offers a 4.1% return on USDC while PayPal pays as much as 3.7% on PYUSD. The Bank Policy Institute (BPI) warns that this could lead to a mass exodus of funds from banks into stablecoins, potentially hindering lending capacity and raising borrowing costs. Their analysis suggests such an outflow could reach a staggering $6.6 trillion if the loophole remains unfixed. The BPI calls for Congress to close the gap by extending the GENIUS Act to include secondary market players. This move is their response to prevent customers from shifting funds away from banks, which poses a long-term challenge to the stability of the financial system. While the current law allows these practices, the banking industry’s push for new regulations could lead to a significant clash between Washington and the crypto sector over stablecoin rewards.