Banking and Finance Law Daily Wrap Up, FINANCIAL TECHNOLOGY—Bank Policy Institute highlights key crypto market issues, (Jan 7, 2026)

By Colleen M. Svelnis, J.D.

With the Senate preparing to consider legislation on crypto, the article identifies four key issues in crypt market structure.

As the Senate prepares to consider legislation on crypto market structure, Bank Policy Institute has released a briefing identifying the risks unregulated crypto poses to consumers and the banking system. The article suggests that a comprehensive approach “can solve for these risks while promoting responsible innovation.”

Legislators are attempting to balance establishing a regulatory framework that provides clarity for consumers and investors while supporting U.S. innovation in digital assets. BPI notes that lawmakers must address risks posed by unregulated crypto activity and prevent evasion of the GENIUS Act, which prohibits stablecoins from paying interest or yield. “Addressing attempts to evade the GENIUS Act’s interest prohibition is necessary to accomplish key goals of comprehensive crypto legislation: to safeguard our financial system and provide clarity for consumers,” according to the briefing.

Stablecoin growth. The legislation highlights several concerns about stablecoin. First, BPI looks at the potential impact of stablecoin growth on traditional banking, warning that it could displace bank deposits and reduce bank credit to the “real” economy. The BPI briefing stresses that the degree to which this happens will depend on how Congress and U.S. regulators resolve policy questions.

Interest payments. According to the briefing, the risk of significant “deposit flight” will be greater if stablecoin issuers are allowed to indirectly pay interest through affiliates or other third parties. These arrangements, often labeled as “rewards” by crypto companies, undermine the GENIUS Act’s prohibition on interest payments. In times of financial stress, BPI warns that these practices could weaken banks’ ability to provide credit to consumers and businesses.

DeFi platforms. Decentralized finance (DeFi) platforms present another area of concern highlighted by BPI. Crypto lending and borrowing via DeFi platforms present a risk of loss to consumers and could transmit crypto shocks to the broader financial system. DeFi lending platforms operate like highly levered banks but operate without deposit insurance, capital or liquidity requirements, or regulatory oversight. These lack of safeguards exposes consumers to potential losses and creates channels for crypto-related shocks to spread into the broader financial system.

Illicit financing pathways. Despite the GENIUS Act, illicit actors—including drug traffickers and terrorists—continue to exploit crypto systems to access the U.S. financial network. Despite existing restrictions, they use unhosted wallets, offshore platforms, and DeFi systems to evade detection, posing ongoing risks to national security and financial integrity.

Companies: Bank Policy Institute

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