One of the central points of the GENIUS Act (U.S.) is the ban on paying interest or remuneration merely for holding stablecoins. This rule has a clear purpose: to reduce the disintermediation of the credit channel caused by stablecoins and to protect the traditional bank funding model.
When a person keeps money in bank deposits, that balance is part of the bank's liabilities, which the bank uses to fund loans to households and businesses.
When that money moves into stablecoins, it is held in segregated custody by qualified issuers and custodians, backed by cash or T-Bills. These funds do not return to the economy as credit.
The practical effect is disintermediation of the credit channel: transactional savings that used to feed bank intermediation are now invested, indirectly, in high-quality liquid assets. As Roberto Campos Neto noted: "Se você tem uma wallet para transacionar ativo digital, você diminui a capacidade dos bancos de fazer crédito. Está desintermediando crédito e política monetária porque tem menos moeda como canal de crédito e dinheiro como depósito." [If you have a wallet to transact digital assets, you reduce banks' capacity to lend. You are disintermediating credit and monetary policy because there is less money as a credit channel and as deposits.] (https://lnkd.in/dpv7zytc)
Without the ban on issuer interest, stablecoins could compete directly with interest-bearing deposits, accelerating the flight of funds off bank balance sheets and increasing the fragility of the credit intermediation model.
In addition, those who keep their balances in stablecoins lose purchasing power to inflation, which reinforces the role of the banking channel as a way to preserve value while funding lending.
In short: by prohibiting remuneration, the GENIUS Act defines stablecoins as a means of payment, preserves banks' deposit base and seeks to ensure that the classic credit function continues to support the financial system.
➡️ In the next post in the series, we will analyze indirect yield arrangements and the regulatory challenge of dealing with platforms that try to pass on, in an opaque way, part of the return on stablecoin reserves.
Authors: Roberto Panucci and Marcelo De Callis
