Banks are fighting stablecoin rewards to protect a secret $360 billion revenue machine.
When Coinbase chief policy officer Faryar Shirzad posted a thread on Jan. 8 warning that stablecoin rewards “remain under debate” as Congress marks up market structure legislation, he attached numbers that banking groups would rather keep quiet.
US banks earn $176 billion annually on roughly $3 trillion they park at the Federal Reserve, and they collect another $187 billion from card swipe fees, nearly $1,400 per household.
That’s over $360 billion in revenue from payments and deposits alone, and stablecoins with competitive yields threaten both streams at once.
The GENIUS Act, signed in July 2025, bans stablecoin issuers from paying interest or yield “directly or indirectly.” Yet, exchanges route rewards through affiliate programs, treating them as loyalty incentives rather than interest.
Banking groups call this a loophole. The American Bankers Association, joined by 52 state banking associations, sent a letter to Congress on Jan. 6 urging lawmakers to extend the ban to “all affiliated entities and partners.”
The numbers tell a different story about who actually benefits from the current arrangement.
Hidden subsidy
Banks hold reserve balances with the Federal Reserve totaling $2.9 trillion as of December 2025.
The Fed paid $176.8 billion in interest on those reserves in 2023, gross income to banks before their own funding costs. Reserve balances existed in trivial amounts before 2008.
The Fed’s adoption of an “ample reserves” framework after quantitative easing created a permanent pool of interest-earning deposits that banks can hold with zero credit risk.
The Fed’s December 2025 decision to begin purchasing Treasury bills signals that reserve balances won’t shrink much further.
If stablecoins offer competitive yields funded by the same Treasury securities that back reserves, they create a parallel system where users can earn similar returns without routing dollars through bank balance sheets.
That doesn’t eliminate bank lending capacity, as stablecoin issuers hold reserves in Treasury bills and bank deposits, but it shifts who captures the spread.
The $187 billion toll booth
US card payments processed $11.9 trillion in purchase volume in 2024, and merchants paid $187.2 billion in acceptance and processing fees. This implies a cost of about 1.57% per $100 of spending.
Nilson Research shows that the eight largest issuers account for 90.8% of Visa, Mastercard, and American Express purchase transactions. Community banks hold a minor share of this revenue pool.
Debit interchange alone generated $34.1 billion in 2023, with network fees adding another $12.95 billion. Credit card interchange is substantially higher.
Stablecoins bypass this infrastructure, since on-chain payments cost a fraction of card network fees. If stablecoins capture even 5% of card purchase volume, which is roughly $595 billion at current fee rates, that represents $9.3 billion in annual merchant savings.
For banks, it’s $9.3 billion in foregone revenue, which doubles to $18.6 billion at 10%.
Stablecoin transaction value hit $33 trillion in 2025, according to Artemis, which makes the competitive threat beyond hypothetical. That’s roughly three times the US card purchase volume.
Most of those transactions occur within crypto markets, but the infrastructure already handles payment flows at scale.
Banking groups frame their opposition as a prudential concern, warning that deposit flight will impair lending.
Charles River Associates, in research commissioned by Coinbase, tested this using monthly data from 2019 to 2025 and found no statistically significant relationship between USDC growth and community bank deposits.
Even under harsh assumptions, community banks would lose less than 1% of deposits in a baseline scenario and 6.8% in an extreme case.
Cornell researchers reached a similar conclusion: rewards would need to approach 6% to affect deposits meaningfully. Current programs range from 1% to 3% and are funded by Treasury bill yields.
That’s competitive with high-yield savings but not transformative enough to trigger mass deposit migration.
Reserve budget scales mechanically
Stablecoins generate yield passively, since issuers hold reserves in Treasury bills yielding 3% to 5%. If platforms pass through half of that yield as rewards, the payout pool scales directly with outstanding stablecoin supply.
At today’s market cap of roughly $307.6 billion, a 1.5% to 2.5% reward rate implies annual user payments of $4.6 billion to $7.7 billion across the industry. If stablecoin supply grows to $1 trillion, the same math produces $15 billion to $25 billion annually.
That kind of distribution competes with both low-yield checking balances and credit card rewards programs, ultimately funded by merchant fees.
Bank incentives become clearer when framed as a defense of margin.
The $176 billion in reserve balance interest and $187 billion in card fees represent revenue streams that require no lending risk. Reserve balances earn a spread over what banks pay depositors, and card fees extract value from every purchase.
Stablecoins compress both margins by introducing competition at the payment layer and offering users a direct claim on Treasury yields.
The policy fight isn’t about whether stablecoins reduce lending capacity. It’s about whether incumbents can lock in a regulatory advantage that prevents stablecoins from functioning as substitutes for transaction accounts.
What GENIUS actually prohibits
The GENIUS Act makes it unlawful for a payment stablecoin issuer to pay interest “directly or indirectly,” explicitly including arrangements through affiliates.
Banking groups argue that exchange-based reward programs violate this provision. Crypto platforms counter that the statute targets issuers, not intermediaries.
The Bank Policy Institute wants clarifying language in market structure legislation to ensure “rewards routed via affiliates” are treated as prohibited yield.
That position reveals the strategy: prevent stablecoins from becoming an alternative to interest-bearing accounts by any means. If successful, stablecoin holders receive no compensation for the value their deposits create, even as banks earn 3% to 5% on reserve balances.
Competitive endgame
Fed researchers note that stablecoins can “reduce, recycle, or restructure” deposits. Banks want the restructuring on their terms: forbid stablecoin rewards while offering bank-issued tokenized deposits that keep balances inside the regulated perimeter.
Users get on-chain dollars. Banks keep the deposits and the spread.
However, stablecoin platforms have a different theory. If the yield ban applies only to issuers, exchanges can compete through affiliate revenue, lending returns, or trading fees. That keeps stablecoins attractive without requiring issuers to pay interest directly.
China announced it will pay interest on the digital yuan, explicitly competing with dollar-denominated stablecoins. If US policy bans rewards while foreign digital currencies offer yields, the competitive implication becomes a national security concern.
Pro-crypto lawyer John Deaton called a US reward ban “a national security trap.”
Congress decides whether to interpret GENIUS narrowly, applying it only to issuers, or broadly, extending it to affiliates and platforms.
The narrow interpretation preserves competition. The broad interpretation protects incumbent margins.
Banking groups frame this as a fight about deposit stability. The numbers show it’s a fight about $360 billion in revenue and whether stablecoins get a chance to compete for it.
