A spat over a landmark cryptocurrency bill is scrambling alliances on Capitol Hill, putting Wall Street banks on the same side as their biggest critic, Sen. Elizabeth Warren, and pitting them against their most reliable GOP allies.
The banking industry is locked in its most aggressive congressional lobbying fight in years ahead of a key Senate Banking Committee vote Thursday on legislation that would help legitimize digital assets. Big banks say the bill threatens their industry by not cracking down enough on crypto companies’ ability to offer “rewards” programs. Banks argue the programs mimic interest-bearing accounts without having to comply with the regulations traditional financial institutions must adhere to.
“I’m not often on the side of banks, but the idea of creating … an unregulated banking system that can crash our entire economy — and doing it so that a handful of billionaires can get even richer — seems like bad policy to me,” Warren, a Massachusetts Democrat, said this week.
The banking industry is lobbying aggressively to get someone — anyone — from the GOP majority to address its remaining concerns that the bill will lead customers to pull their money out of traditional bank accounts to seek a higher return in crypto accounts.
A pair of key senators struck a deal earlier this month that seeks to satisfy some of the banks’ issues, which center on rewards programs offered by crypto exchanges that pay annual percentage yield to customers who hold so-called stablecoins. The agreement from Sens. Thom Tillis (R-N.C.) and Angela Alsobrooks (D-Md.) aims to bar crypto exchanges from paying interest on idle stablecoin balances that customers hold in their wallets. But bankers say loopholes remain, and they're fighting for changes that would clamp down further.
Most Republicans, though, don’t seem eager to budge.
The Tillis-Alsobrooks yield deal “satisfies a lot of what they had concerns with,” said Sen. Mike Rounds (R-S.D.), a business-friendly member of the Banking Committee. “I don’t think it’s ever going to be as perfect as they would like it to be, but I think it’s come a long, long way.”
Warren has teamed up with big banks before to push legislation cracking down on the crypto sector — but her past efforts had bipartisan backing. The banking lobby’s struggle to get its way in the yield fight illustrates the degree to which the crypto industry has won over the GOP, thanks in part to massive lobbying and super PAC spending.
Warren and other progressive Democrats — who are more used to fighting with banking lobbyists over financial regulation issues — are preparing to offer amendments at the Thursday markup that would strengthen the stablecoin yield restrictions in the bill. They share the banking industry’s worries that too much latitude for crypto exchanges to offer their customers rewards on stablecoins could cause consumers to flee the regulated banking system, with broad implications for consumer protection and overall lending.
The amendments could put some bank-friendly members like Rounds and Sen. Katie Britt (R-Ala.) in a tough spot, but adopting them could jeopardize the path forward for the underlying bill — a sweeping overhaul of how digital tokens are regulated that is a top Trump administration priority. Even if the bill is approved by the Banking panel as is, banks are expected to continue lobbying aggressively as the legislation advances and could peel off members on the floor.
Tillis, long a top Wall Street ally, is urging bankers to see that his deal with Alsobrooks may be the best they can get while still getting a bill done, which likely requires buy-in from the crypto sector. If the overall effort dies, he says, crypto companies will continue offering programs with yield-like rewards that banks want to ban.
“What the banks have to understand is, either the status quo is going to exist or this negotiated amendment,” Tillis told reporters Monday.
Despite a unified push for tougher language from top bank trade groups, Wall Street giants are privately split about how the industry should approach the fight, according to three people with knowledge of the discussions among large banks, who were granted anonymity to discuss sensitive industry dynamics.
Banks that rely heavily on commercial and retail deposits, and are therefore more exposed to possible deposit flight, such as Wells Fargo, are adamantly against the language and still pushing to change it. Banks that are less reliant upon deposits and instead draw their revenue more from activities like investment banking and trading, such as Goldman Sachs and BNY, are less strident.
All want the change in language, the people said, but many of the more deposit-light, trading-heavy banks want to move on from the yield fight and guarantee the rewards of other parts of the bill they view as crucial. That includes a section on bank permissibility, which would codify that all banks can use digital assets and blockchain technologies for any activity they are already permitted to do, such as trading.
Goldman Sachs, Wells Fargo, JPMorgan Chase, Citigroup, BNY and Bank of America declined to comment. Morgan Stanley did not respond to requests for comment.
The Bank Policy Institute, which represents 40 of the largest U.S. banks, did not respond to a request for comment. The Financial Services Forum, which represents the eight largest American lenders, declined to comment.
“It’s funny how transactions do things,” Tillis said. “Probably 99 out of 100 banking decisions around here, the banks are with me, and I’m with them. The one I’m not, they're with Warren. Knock yourselves out.”
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