- Key insight: A critical markup will show how many lawmakers will side with the crypto industry over banks on banning stablecoin yield.
- What's at stake: Lawmakers will consider amendments that would make the changes that the banking industry prefers, but getting enough votes to approve them would require Republican buy-in, which is far from assured.
- Forward look: If the legislation passes in a party-line vote, the banking industry will have more opportunities to make changes when the bill comes before the full Senate and when it comes under consideration in the House.
WASHINGTON — Some lawmakers may be forced to choose sides between the crypto and banking industries at a highly watched markup of a crypto market structure bill in the Senate Banking Committee on Thursday.
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Banks have complained that the language doesn't restrict the ability of crypto firms — including large crypto exchanges — to offer yield in a way that those crypto firms can't easily bypass. The industry worries that if customers can get what is functionally yield from their stablecoin holdings, customers will choose to leave their savings in stablecoins rather than as deposits, draining the lifeblood from the banking system over the long term.
"Clearly, the number one priority of the banking industry at this point is banning yield," said Joseph Cox, a financial services partner at Oliver Wyman. "Longer-term, it's a really big deal if you can have something that has most of the economic characteristics of banks, but in a completely different regulatory wrapper that's a lighter touch."
The debate has spurred the banking industry to flex its lobbying muscle in ways it hasn't for years. Thousands of letters from banking trade members have come into the Senate Banking Committee after the panel announced the markup, and are continuing to pour in leading up to Thursday, said a person familiar with the issue.
Crypto firms are heavily invested, for their part, in the bill's passage. Arrangements between companies like Circle and Coinbase rely on that yield-like reward arrangement, so Coinbase in particular has been vocal on the issue. Coinbase and other crypto firms
The markup on Thursday will pit banking against the crypto industry — a position the banking industry doesn't particularly want to be in, given the subject's importance to the White House and President Donald Trump. People familiar with the industry's thinking on the issue said that bankers want a bill to pass, but are fighting hard on a few key language changes that their trade groups say will narrow crypto firms' opportunity to bypass what they say is the spirit of the rule.
Sens. Jack Reed, D-R.I., and Tina Smith, D-Minn., filed an amendment that includes those banking industry changes to the Tillis-Alsobrooks language, according to amendment text seen by American Banker. If the senators insist on a vote, both Republicans and Democrats — some of whom benefited from the crypto industry's election spending in the last cycle — will have to choose between two powerful lobbies, invariably angering one or the other.
The ultimate winner of that vote is still up in the air, although it's unlikely that too many Republicans will break with the position of committee Chair Tim Scott, R-S.C, who wants to get the bill passed with the language that gets it through the full Senate and House.
The question, then, becomes whether enough Democrats are sympathetic to the banking industry's position, and whether there are a few swing Republican senators who would come along.
Tillis has publicly stood by his language, but other lawmakers, including Sens. Katie Britt, R-Ala., Mike Rounds, R-S.D., and other Republicans with a long history with the banking industry could ultimately come down on the banking industry's side. Sen. John Kennedy, R-La., has also been critical of the bill, and at one point threatened to withhold his support over his frustration with the housing bill progress, although few analysts expect him to hold that position come Thursday.
"Kennedy's been skeptical of the bill, but I really have a tough time seeing him vote against his chairman in this situation," said Brian Gardner, chief policy strategist at Stifel.
The breakdown on this vote, and the vote on the bill overall, might not even be a clean partisan split, Gardner said.
"I think younger Democrats in particular are more favorably inclined towards the crypto industry than older Democrats are," he said. "I think there's a real generational divide."
Thursday's markup also isn't banks' last chance to make changes. Amendments are possible after the bill is recommended favorably to the full Senate, and two people familiar with the bank lobby's thinking said that's an avenue the industry will pursue if the Reed-Smith amendment fails.
Even so, there is a limited amount of time for further debate, with Congress' August recess on the horizon and midterm elections in full swing after that.
"It is hypothetically possible that there will be a later breakthrough, but a party line vote [in committee] would diminish those odds, and the odds of the bill passing by year end," Gardner said. "We're just running short on time."
A party-line vote out of the Senate banking committee would mean that the legislation would struggle to get the 60 necessary votes in the Senate to invoke cloture and receive a full Senate vote. Democrats — including some of the lead negotiators from the party who already signed off on many of the ideas in the legislation — could still hold back support if ethics provisions for the president and his family members aren't ultimately included.
"Obviously it seems like things are going forward, but we have been here before, and it's an election year," Cox said. "There's lots of ways that this could get tripped up. So we'll see whether the banks get their way, or does this pass at all."
