Banking and Finance Law Daily Wrap Up, FINANCIAL TECHNOLOGY—Better Markets: GENIUS Act will undermine financial system, monetary policy, (Aug 22, 2025)

By Jonathan Anderson

A new fact sheet from the organization argues that stablecoins pose unique risks to the economy that could be exacerbated now that the GENIUS Act is law.

On Aug. 21, 2025, Better Markets released a fact sheet entitled “The Crypto Stablecoin GENIUS Act Hurts All Americans by Undermining the Economy, Financial System, and Monetary Policy.” The fact sheet is critical of the GENIUS Act, which became law in July, arguing that the legislation may spur stablecoin growth and therefore compound unique risks to financial stability, the banking system, and monetary policy. The fact sheet also argues that the law’s regulatory provisions are mostly illusory and that the legislation contains various loopholes and ambiguities that benefit industry and allow for high-risk activity. Better Markets describes itself as a nonpartisan, nonprofit organization that promotes the public interest.

Financial stability risks. Better Markets argues that the structure of stablecoins are akin to money market funds, which have caused financial stability risks. Further, if stablecoin issuers cannot honor redemption requests or if there is a loss of confidence in an issuer’s ability to honor such a request, issuers could be subject to a run. The fact sheet argues that the assets the GENIUS Act deems safe for reserves can be subject to substantial volatility, including such assets as Treasuries, shares in money market funds, uninsured bank deposits, and repurchase agreement loans. The fact sheet notes that uninsured bank deposits were the subject of federal bailouts in 2023, including at Silicon Valley Bank, which had billions of dollars in such deposits by large crypto firms. Better Markets also noted cybersecurity vulnerabilities and illicit finance risks that are unique to stablecoins.

Banking, lending undermined. The fact sheet argues that if the GENIUS Act causes stablecoin issuers to expand, the economy will slow and prices will increase, thereby undermining the banking system. “Put simply, a dollar of savings put into a stablecoin is a dollar that is not deposited at a bank,” the fact sheet reads. Fewer bank deposits means banks will have less money to lend, Better Markets argues, citing a report from the Federal Reserve Bank of Kansas City estimating that bank lending could drop by $325 billion if the stablecoin market increases to $900 billion, or 260 percent, which is within the range of some independent projections. Better Markets argues such a reduction in bank lending could increase borrowing costs and the unemployment rate. The ability of stablecoin issuers to pay interest to their customers may exacerbate the flow of money from the banking system to stablecoins.

Monetary policy complicated. Better Markets argues that stablecoins complicate the Fed’s monetary policy and may even hinder it. Stablecoin issuers are likely to hold significant amounts of Treasuries and dollars on reserve, which may cause such markets to fluctuate by the flow of investment in and out of stablecoins, according to the fact sheet. These flows may affect both cash Treasury markets and markets for repurchase agreement-based short-term lending. Better Markets argues that the Fed may need to intervene to control rates if they depart from policy goals. Further, stablecoin interest rates may impact how the Fed manages its policy rates.

Companies: Better Markets

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