There is a big-money lobbying fight going on on Capitol Hill pitting banks against the fast-rising crypto industry, with potentially trillions of dollars at stake.
The banks want lawmakers to broaden an existing ban on stablecoin interest payments in an upcoming regulatory bill, an action they claim will preserve their ability to make loans.
According to an April Treasury Department report, up to $6.6 trillion in deposits could flow from banks to stablecoins depending on whether they are able to pay interest to users.
In an effort to lobby the Senate, there have been a slew of online ads and more than 320,000 messages sent to Senate offices in recent weeks.
Banking incumbents war with new financial order
Crypto platforms are giving traditional banks a run for their money by providing competitive returns on stablecoins, which the banks see as a loophole in the GENIUS Act.
While the Act explicitly prohibits stablecoin issuers from paying direct interest to holders, it allows exchanges (like Coinbase and Kraken) to offer rewards structured differently, something the banks think could trigger more capital flight into stablecoins.
“We’re very worried about interest, rewards, yields—call it whatever you want—impeding banks’ ability to serve their communities through loans,” said Brooke Ybarra, senior vice president of innovation and strategy at the American Bankers Association.
“This is an issue that affects crypto voters and the average American very personally and, because of that, it really struck a chord,” said Mason Lynaugh, community director at Stand With Crypto, an industry-allied group.
While the crypto industry proponents argue that such a ban would put future innovation in jeopardy, the ABA’s Jess Sharp and Brooke Ybarra, echoing the sentiments of most banks, said the issue is critical for banks because it is about ensuring they can continue to support “communities and power the economy.”
On X, the argument is heating up with many crypto enthusiasts calling out the institutional powerhouses for attempting to maintain the status quo which only favors TradFi.
Dave Ripley, the co-CEO of Kraken, wanted to know why “allowing companies like @krakenfx or @coinbase to pay interest on stablecoins would be “a detriment.”
“A detriment to who?” He asked before adding that “healthy competition is the bedrock of a free market and free markets benefit actual consumers and businesses.”
He went further by saying “Consumers should have the freedom to choose where they hold value and the most efficient way to send that value” and that “Banks want to preserve their position and keep earning fees on client assets without passing the benefit back to the people who own them.”
“We will stay pro-competition, pro-consumer, and pro-innovation,” Ripley concluded.
Another user in response to the post wrote: “Bring on the competition, it’s a capitalist world anyway,” effectively drawing the battle line between what many are now calling an outdated financial order and the new crypto paradigm.
The debate is stalling crucial progress
The bank versus crypto debate has become the latest roadblock hampering progress on the market structure bill.
Senate Banking Chairman Tim Scott (R-S.C.) attempted to advance the measure by September 30. However, those efforts were thwarted by partisan divisions. The government shutdown has delayed the timeline even further.
Sen. John Kennedy (R-La.), a senior banking committee member, said last week the panel needs to move deliberately to address “mistakes, if any” with the GENIUS Act and also acknowledged that the banking community needs to be heard on the issue.
The House passed its own market structure bill in July, and though about 80 Democrats voted for the GOP-led bill, the Senate has yet to take it up.
The House-passed bill would make amendments to GENIUS, including by restricting non-financial companies such as Big Tech firms from acquiring stablecoin issuers, but does not affect the existing ban on interest payments.
The crypto-friendly White House is reportedly urging Congress to enact the second crypto law by the end of the year.
“This whole year, every single week, we’ve seen a movement forward, sometimes inches, sometimes feet,” Calvert said of the market structure measure. “They are tackling really meaty issues.”
