U.S. Senator Warns Yield-Bearing Stablecoins Could Threaten Banks & Mortgage System, Calls for Strict Regulations
News 2025-03-28

Senator Calls for Limits on Interest-Bearing Stablecoins

At the 2025 DC Blockchain Summit on March 26, Senator Kirsten Gillibrand (D-NY) warned that allowing stablecoin issuers to offer interest-bearing products could undermine traditional banks, particularly local banks that provide mortgages and small business loans.

"If stablecoin issuers offer interest, people will lose the incentive to deposit funds in local banks. Without deposits, small banks won’t be able to provide loans, leading to the collapse of essential financial services," Gillibrand stated.

Major Financial Institutions Entering the Stablecoin Market

Despite regulatory concerns, top financial players are actively expanding into stablecoins, with yield-bearing options becoming a key competitive factor:

  • Bank of America: Plans to issue its own stablecoin after regulatory approval.
  • Standard Chartered: Developing an HKD-pegged stablecoin.
  • Custodia & Vantage Bank: Launched Avit, a bank-backed tokenized USD deposit.
  • PayPal: Expanding PYUSD stablecoin into more commercial payment use cases.
  • Stripe: Acquired stablecoin platform Bridge for $1.1 billion, signaling confidence in digital payments.
  • Figure Markets: Received approval for yield-bearing stablecoin YLDS.
  • Revolut: Exploring its own stablecoin issuance.
  • Visa & BBVA: Collaborating on a euro-pegged stablecoin, set to launch next year.

Push for New York’s Strict Financial Regulations

Gillibrand emphasized New York State's rigorous financial regulations and advocated for their application to all stablecoin issuers nationwide to ensure compliance and consumer protection.

📌 Legislative Developments & Concerns

As a co-sponsor of the GENIUS Act (Guidance and Establishment of National Innovation for U.S. Stablecoins), Gillibrand and Senator Bill Hagerty introduced a regulatory framework for digital fiat tokens in February.

🔹 Recent updates to the bill include:

✅ Stricter Anti-Money Laundering (AML) rules

✅ Enhanced Know-Your-Customer (KYC) verification

✅ Financial transparency requirements

✅ Stronger consumer protections

However, critics argue that this could pave the way for a privatized U.S. Central Bank Digital Currency (CBDC).

Jean Rausis, co-founder of decentralized exchange Smardex, cautioned:

📢 "Centralized stablecoins could enable financial surveillance and censorship, allowing the government to freeze funds or exclude individuals from the financial system."

Regulatory Uncertainty & Market Impact

With stablecoins and digital assets gaining mainstream adoption, regulators are struggling to balance financial innovation and systemic stability.

Gillibrand's stance highlights growing tensions between traditional banking interests and emerging fintech solutions. Finding a middle ground between regulation and innovation will be a defining challenge for U.S. financial policy moving forward.