Major US banks are lobbying lawmakers to tighten newly enacted stablecoin regulations, warning that current rules could trigger massive deposit outflows and disrupt traditional banking, according to industry sources. The push highlights mounting tension between Wall Street and the cryptocurrency sector.
Banking trade groups, including the American Bankers Association, the Bank Policy Institute, and the Consumer Bankers Association, last week cautioned Congress about what they describe as a “loophole” in the Genius Act, legislation passed in July aimed at regulating the $288 billion global stablecoin market.
While the law bars banks from paying interest on stablecoins they issue, crypto exchanges can indirectly offer interest or rewards to holders of stablecoins issued by third parties such as Circle and Tether. Banks argue this creates an uneven playing field and could drive depositors away from traditional financial institutions.
A US Treasury report from April estimated that, depending on whether stablecoins can offer yield, the sector could siphon as much as $6.6 trillion in deposits from banks. Banking lobbyists warned that this “deposit flight risk” could undermine credit creation, potentially leading to higher interest rates, fewer loans, and increased costs for households and small businesses.
Ronit Ghose, head of Citi’s Future of Finance think tank, compared the threat to the rise of money market funds in the 1980s, which drew deposits away from traditional accounts due to higher yields. Sean Viergutz of PwC echoed the concern, noting that a shift to higher-yielding stablecoins could force banks to rely more on wholesale funding or raise deposit rates, making credit more expensive.
Crypto industry groups have pushed back, labeling the banks’ campaign as anti-competitive. In a letter to senators, the Crypto Council for Innovation and the Blockchain Association accused banks of attempting to “protect legacy institutions at the expense of broader industry growth, competition, and consumer choice.” Coinbase’s chief legal officer Paul Grewal echoed this sentiment, stating on X that lawmakers had “rejected your unrestrained effort to avoid competition.”
The push-and-pull between banks and crypto firms comes as the Biden administration has championed integrating digital assets into the US financial system. Treasury Secretary Scott Bessent has indicated that stablecoins could become a key source of demand for US government bonds, a development first reported by the Financial Times.
