- Key insight: Bankers and crypto companies are ramping up pressure on lawmakers, who delayed a pivotal meeting to mark up the crypto market structure bill.
- Forward look: The withdrawal of Coinbase's support for the bill is a blow to the overall legislation, and preceded Senate Banking Committee Chairman Tim Scott's, R-S.C., decision to postpone the markup, and the bill is a long way from getting the strong bipartisan support it needs.
- What's at stake: Bank groups say that allowing crypto firms to pay yield-like rewards on stablecoin reserves would drain deposits from the banking system and dampen local lending.
This article was updated at 10:29 p.m. to reflect the Senate Banking Committee's cancellation of the market structure markup.
WASHINGTON —Crypto companies derailed a critical vote on the crypto market structure bill that a Senate committee is considering, in part over a stablecoin yield payment issue that banking interests have sparred with crypto lobbyists over all week.
The bill was set to undergo a markup in the Senate Banking Committee Thursday morning. Since the committee released text of the bill to be marked up, crypto and banking groups have rushed to convince lawmakers to either toughen or loosen laws governing crypto exchanges' ability to offer rewards for holding stablecoin.
And with fewer than 24 hours to go before the markup, Coinbase, one of the
It was a blow to efforts to pass the bill, with or without the yield provision.
"It really is going to be whether really the digital asset firms, more than the banking sector, feel comfortable with it," said Peter Dugas, managing director of finance advisory firm Regulatory Intelligence Group. "I think you know, as time goes on, that's the biggest concern overall."
Late Wednesday evening, Senate Banking Committee Chairman Tim Scott, R-S.C., said in a press release that the markup is being postponed.
"I've spoken with leaders across the crypto industry, the financial sector, and my Democratic and Republican colleagues, and everyone remains at the table working in good faith," Scott said in a statement. "This bill reflects months of serious bipartisan negotiations and real input from innovators, investors, and law enforcement. The goal is to deliver clear rules of the road that protect consumers, strengthen our national security, and ensure the future of finance is built in the United States."
Bank groups argue that the stablecoin bill passed into law last year left open a loophole that allows crypto firms to pay yield-like rewards on stablecoin reserves, a problem they say could lead to an outflow of deposits from banks, forcing them to cut back on lending and damaging local economies.
The current market structure bill includes a section banning crypto firms from offering rewards tied to stablecoin holdings, but exempts some rewards that come from a membership or incentive program.
For bankers, the provision doesn't go far enough.
"There's still work to be done, and really what, what we're looking for is, is a full prohibition," said
She said that the ICBA wants a full ban on the payment of interest in yield that applies not just to stablecoin issuers, but also to the exchanges, the third parties and the affiliates.
"I think that's where some of the conversation the last couple of days has been is, you know, who does this apply to?" Rainey said. "And is the prohibition just on transaction activity, or is it on the holding of the actual stablecoin?"
The American Bankers Association led a petition of more than 3,200 bankers that it delivered to the Senate Banking Committee on Wednesday evening, urging the committee to "strengthen the existing prohibition in digital asset market structure legislation by extending interest restrictions to digital asset exchanges, brokers, dealers, and other affiliates."
ICBA also launched an ad campaign on the issue targeting Senate Banking Committee members broadly, the group said.
The text for the amendments to be discussed in an eventual markup aren't public, but as of Wednesday afternoon there were more than 100 of them on the table, according to two people familiar with the committee's planning.
Sens. Thom Tillis, R-N.C., and Angela Alsobrooks, D-Md., had been active on the stablecoin yield issue, the people said, and were expected to have amendments on the stablecoin yield issue for bankers to watch.
"We believe the deal is that platforms may not pay rewards for keeping stable coins with them, but they will be able to pay rewards when stable coins are used," Jaret Seiberg, a managing director at TD Cowen, said in a note. "This is similar to how banks before the Durbin amendment would offer rewards for using debit cards despite checking accounts not paying interest."
The bill is still in relatively early stages, and has a ways to go until it becomes law. Negotiators also hit roadblocks over ethics rules that Democratic lawmakers are demanding, and have a host of controversial issues to consider outside of the yield issue.
That said, the markup will give industry-watchers insights into the way lawmakers on both sides of the aisle approach the concerns that bankers have surfaced in the last week.
"[The bill is] no longer an opening bid, but it's certainly an anchor," said Gabe Rosenberg, a financial institutions partner at Davis Polk. "But there's lots of opportunities.
