Crypto companies are stepping up efforts to win banks over as a major Senate bill on digital assets hits roadblocks. The bill, which passed through the House of Representatives last year, would reshape parts of the U.S. crypto market.
Disagreements in the Senate, however, have stalled its progress, and the legislation’s future is uncertain. Crypto firms are seeking new concessions on stablecoins to push things forward. These initiatives are intended to resolve one of the main sources of friction with banks, signalling the crypto industry’s intention to keep the bill alive.
One of the new proposals is to allow community banks to play a greater role in the stablecoin ecosystem. That may involve holding some of the reserves that underpin stablecoins or teaming up with crypto firms to issue tokens themselves.
Those who know about the talks, who spoke anonymously, say they don’t believe every crypto company backs every idea. But the moves indicate the industry is actively trying to close the gap with banks and advance stalled legislation.
Banks push back against crypto reward plans
One of the main sticking points in the Senate discussions was whether it would allow crypto trading companies, like Coinbase, to offer clients incentives to hold stablecoins. The offers could be in the form of interest or incentives to keep their digital assets in their accounts.
Some banks fret that those arrangements will siphon money from regular checking and savings accounts, draining funds that their customers rely on to lend and for other services. This is particularly vexing because stablecoins are supposed to represent a stable value — often pegged to the U.S. dollar — and therefore may seem to users like “digital cash.”
If enough people deposit their money in stablecoins to earn rewards, banks worry that a sudden drop in deposits could impair their ability to operate as usual, especially at smaller community banks that rely on local deposits. Not even major meetings have resolved the disputes.
Earlier this week, the White House hosted a meeting with representatives from crypto companies and the banking trade group. Both sides discussed potential solutions at the meeting, but the only issue that wasn’t settled was how to responsibly offer stablecoin rewards without endangering traditional banks.
The lack of consensus shows how difficult the deals are. On the one hand, crypto companies might offer users new ways to do things. In comparison, banks are wary that any changes will disrupt the financial system or reduce customer deposits. Now, it’s hard for lawmakers to weigh opposing pressures as they push to advance the stalled digital asset bill.
Crypto firms and banks push toward compromise
In recent days, some crypto companies have floated compromise ideas. One suggestion is for stablecoin issuers to keep some of their reserves at community banks.
Another is to make it easier for community banks to issue their own stablecoins. Although these proposals are promising, it remains unclear whether they are effective enough to assuage banks’ concerns.
Senator Tim Scott, chair of the Senate Banking Committee, told Fox News he is hopeful it will be resolved. He added that there is a better way to balance the need to protect consumers who often use community banks with creating a safe space for innovation that shrinks costs and increases access to banking. “Both sides are working toward a compromise that retains innovation here in America,” Scott said.
The outcome of the bill depends on whether crypto firms and banks can find common ground as discussions continue. The industry is keen to continue fostering innovation, but legacy banks are wary of the potential downside.
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