Are Stablecoins a Threat to Traditional Banking?
On October 21, 2026, the U.S. Office of the Comptroller of the Currency (OCC) became the first federal banking regulator to finalize regulations implementing the GENIUS Act for payment stablecoin issuers under its jurisdiction. Scheduled to take effect on January 18, 2027, the regulations cover stablecoin issuance, reserve assets, redemption, custody, risk management, regulatory reporting, and supervision.
On October 21, 2026, the U.S. Office of the Comptroller of the Currency (OCC) became the first federal banking regulator to finalize regulations implementing the GENIUS Act for payment stablecoin issuers under its jurisdiction. Scheduled to take effect on January 18, 2027, the regulations cover stablecoin issuance, reserve assets, redemption, custody, risk management, regulatory reporting, and supervision.
The final rule drew immediate criticism from the American Bankers Association (ABA), particularly over its treatment of stablecoin rewards.
In response, ABA President and CEO Rob Nichols stated:
“While the rule includes several positive steps, we disagree with the OCC’s decision to move away from its original position on stablecoin yield. The result is a final rule that will preserve the status quo for crypto platforms despite Congress's clear intent to protect local lending.”
The Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, signed into law on July 18, 2025, established a federal regulatory framework for payment stablecoins. It requires permitted issuers to maintain qualifying reserves backing their outstanding stablecoins at a ratio of at least one-to-one and prohibits interest or yield paid solely in connection with holding, using, or retaining payment stablecoins.
“No permitted payment stablecoin issuer or foreign payment stablecoin issuer shall pay the holder of any payment stablecoin any form of interest or yield (whether in cash, tokens, or other consideration) solely in connection with the holding, use, or retention of such payment stablecoin.” (Section 4(a)(11))
According to the White House Council of Economic Advisers (CEA), the GENIUS Act prohibits stablecoin issuers from paying yield but does not explicitly prohibit rewards offered by exchanges or other intermediaries.
For example, PayPal USD (PYUSD) is a dollar-backed stablecoin issued by Paxos. PayPal offers eligible customers a variable annual rewards rate, currently 4%, for holding PYUSD in their PayPal accounts, with rewards calculated on the average daily balance and paid monthly in PYUSD. While Paxos issues the stablecoin, PayPal offers the rewards program, illustrating how customers can receive rewards from a company other than the issuer.
The controversy concerns arrangements in which stablecoin issuers may indirectly fund or facilitate rewards through other companies, potentially circumventing the law.
To address this concern, the OCC proposed a rebuttable presumption in March 2026 under which certain arrangements between stablecoin issuers and their affiliates or related third parties would be presumed to violate the interest ban unless the issuer provided evidence to the contrary. The October final rule removed that presumption, opting instead to evaluate potential violations individually.
The ABA criticized the removal of the proposed safeguards and argued that the OCC should have done more to prevent stablecoin issuers from circumventing the interest ban. Nichols warned:
“As a result, payment stablecoin issuers can provide economically equivalent yield while technically avoiding the statutory prohibition.”
The ABA also warned that allowing stablecoin issuers to offer economically equivalent yield could threaten bank deposits and lending. Nichols continued:
“Those gaps risk undermining the distinction Congress drew between payment stablecoins and traditional bank deposits, threatening the funds banks use to make the loans that drive the U.S. economy.”
These concerns predate the OCC's October decision. In January 2026, Bank of America CEO Brian Moynihan cited studies he believed were conducted by the Treasury which suggested that upwards of $6 trillion in bank deposits could migrate from banks to stablecoins. Moynihan warned that such a shift could affect small and medium-sized businesses by reducing banks' lending capacity.
On March 2, 2026, JPMorgan Chase CEO Jamie Dimon argued:
“If you’re going to be holding balances and paying interest, that’s a bank. You should be regulated like a bank.”
However, research from the CEA challenges the scale of the banking industry's concerns. In September 2026, the CEA published a companion FAQ and interactive model addressing criticism of its April study, Effects of Stablecoin Yield Prohibition on Bank Lending. Under the model's baseline assumptions, the CEA found that eliminating stablecoin yield, including rewards paid through intermediaries, would increase bank lending by $2.1 billion, or 0.02%, while imposing a net welfare cost of $800 million annually.
The OCC's final rule marks another step toward implementing the GENIUS Act. While the rule establishes regulatory requirements for payment stablecoin issuers, the banking industry continues to raise concerns about how stablecoin rewards could affect traditional banking.
The debate now extends beyond how stablecoins should be regulated to whether their growing presence threatens traditional banking—and where regulators should draw the line.
Sources:
https://finance.yahoo.com/news/bank-america-ceo-joins-chorus-203012076.html
https://www.congress.gov/119/plaws/publ27/PLAW-119publ27.pdf
https://www.occ.gov/about/who-we-are/index-who-we-are.html
https://occ.gov/news-issuances/news-releases/2026/nr-occ-2026-92.html
https://occ.gov/news-issuances/bulletins/2026/bulletin-2026-50.html
https://pep.paypal.com/us/digital-wallet/manage-money/crypto/pyusd
https://www.occ.gov/news-issuances/federal-register/2026/91fr10202.pdf
https://occ.gov/news-issuances/news-releases/2026/nr-occ-2026-92a.pdf
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