Days before a key Senate committee is scheduled to vote on landmark cryptocurrency legislation, American Bankers Association CEO Rob Nichols sent a letter to bank executives urging them to contact their senators, warning in a letter Sunday night that the industry faces an "urgent advocacy fight that requires your immediate engagement."
In a letter sent to bank CEOs, Nichols argued that the bill does not do enough to prevent crypto companies from offering "interest-like rewards" on stablecoins.
"Without additional changes, we believe the current proposal would unnecessarily incentivize the flight of bank deposits into payment stablecoins, putting both economic growth and financial stability at risk," Nichols said in the letter, adding that ABA wants lawmakers to put crypto rules in place.
The push comes as the Senate Banking Committee prepares for a markup hearing Thursday on sweeping crypto legislation that would, for the first time, establish a comprehensive federal regulatory structure for the industry and clarify oversight responsibilities among federal agencies. The committee had initially scheduled a markup in January, but cancelled it at the eleventh hour after major crypto exchange Coinbase pulled its support over concerns, including the treatment of stablecoin rewards.
Over the past year, banking groups have pushed back against a stablecoin bill passed into law last year, nicknamed GENIUS, which blocks issuers from paying interest directly but leaves room for platforms like Coinbase to offer rewards. They argue such incentives could pull deposits away from traditional banks, particularly community institutions. Crypto firms counter that restricting rewards would hamper innovation.
After months of meetings among lawmakers, the White House, crypto executives, and bank trade groups, key negotiators Sens. Angela Alsobrooks, D-Md., and Thom Tillis, R-N.C., came up with a compromise to end the dispute.
On May 2, the senators released language that blocks "covered parties" from paying any form of interest or yield to U.S. customers solely for holding stablecoins, or in any manner "economically or functionally equivalent to the payment of interest or yield on an interest-bearing bank deposit." That prohibition does not extend to "activity-based or transaction-based rewards and incentives" tied to bona fide activities.
That language garnered support from the likes of Coinbase, but bank industry groups have since pushed back and say it "falls short." On May 8, a group of financial trade associations that represent a variety of banks sent a letter to Senate Banking Committee Chair Tim Scott and top Democrat Elizabeth Warren asking for technical changes to stablecoin reward language. In the letter, they say the current language is not clear on whether certain activities would be allowed, such as paying a customer a flat amount every month for holding stablecoins that increases as the balance goes up.
The bank groups said they agree with the premise that certain stablecoin activities can generate rewards and that interest-like payments will be blocked.
"We are concerned, however, that the proposed language includes exceptions that will enable evasion of the intended prohibition and incentivize customers to hold and grow stablecoin balances at the expense of deposits," they added.