Alabama Senator Sounds Alarm Over GENIUS Act’s Threat to Rural Banks

Keith Kelley, a Republican state senator from Alabama’s 12th district, has raised urgent concerns about the potential negative effects of the new federal stablecoin legislation known as the GENIUS Act. 

In an op-ed for 1819 News, Kelley argued that a loophole in the bill could “devastate” local economies, especially in rural areas like those across Alabama. His warning comes two months after the bill was signed into law by President Donald Trump.

The senator pointed out that the bill allows cryptocurrency platforms to distribute financial incentives, encouraging account holders to withdraw funds or close accounts at small community banks. 

“Unlike large banks, community banks depend on local deposits to fund their lending,” Kelley explained. If those deposits decrease, their ability to offer loans to individuals, families, and small businesses will be significantly restricted.

He further explained how rural farming communities, where seasonal cash flow is critical, could face severe hardships without trusted lending partners.

GENIUS Act Loopholes Could Weaken Community Banks

Although the GENIUS Act was signed into law on July 18, it has not yet come into effect. The law requires the US Treasury and the Federal Reserve to finalize regulations before implementation. In August, the Treasury began seeking public comments focused on preventing illicit activity and ensuring regulatory oversight.

Proponents of the GENIUS Act argue that it will bring much-needed regulatory clarity to stablecoin issuers, driving innovation and investment in the US. However, critics—including Kelley—believe that the bill’s vague wording could create loopholes for cryptocurrency exchanges to offer yield-like rewards indirectly. 

The provision at the heart of the issue states that stablecoin issuers cannot pay yields solely in connection with the holding, use, or retention of such payment stablecoin. 

Yet, the bill does not explicitly prevent exchanges or affiliates from offering similar incentives, effectively sidestepping restrictions.

Calls for Stronger Oversight Grow

Banking groups have echoed these concerns, warning that the GENIUS Act could lead to deposit outflows as high as $6.6 trillion. This would disrupt credit access for families and small businesses, particularly in rural areas that depend on local lending. 

“Allowing these cryptocurrency companies to function like banks, offering rewards or yield-bearing products, without requiring them to play by the same rules is not innovation,” Kelley said. “It is regulatory arbitrage, and it is putting the livelihood of American families and our local economies at risk.”

As the Treasury and Federal Reserve move toward drafting final rules, stakeholders are calling for tighter definitions and safeguards.