WASHINGTON — Despite promises from House leadership, bankers aren't going to get their biggest concerns about a pair of crypto bills addressed before lawmakers send them to President Donald Trump's desk.
House lawmakers were set to vote on stablecoin and market structure bills this week, part of what the lower chamber has dubbed, with much pomp and circumstance, "crypto week."
Political drama has derailed that plan. The bills failed a key procedural vote on Tuesday afternoon after the Freedom Caucus — a group of the most right-wing lawmakers — demanded that the two bills combine with another one that would ban a Central Bank Digital Currency. What happens from here will depend on dealmaking from House leaders.
That said, the bills are a high priority for the White House, and attempts from House Financial Services Committee ranking member Maxine Waters of California to block them haven't attracted enough Democratic support, so both bills are expected to pass — eventually — with
But that doesn't mean that everyone will be happy with the result of months of work by Republicans on the crypto and stablecoin bills. Bankers have had some
"If properly crafted, the combined effect of these bills could provide
much needed regulation to the growing digital assets market without jeopardizing investors, financial system stability, or disintermediating community banks," the Independent Community Bankers Association told House leadership in a letter on Monday obtained by American Banker. "However, stablecoin and market structure legislation must not create a shadow banking system that offers fewer protections to consumers and imperils the ability of community banks to provide capital and credit to local communities."
Previously, lawmakers said that issues with the bills would get ironed out in the legislative process, particularly around the separation of banking and commerce.
"We'll find a landing spot on that topic," House Financial Services Committee Chairman French Hill, R-Ark.,
But there's not been any progress on the topic as the bills head to their final votes.
The ICBA said that CLARITY, the market structure bill, bill would amend the Bank Holding Company Act "in a way that would open the door for crypto firms to amass market and economic power by owning banks through a bank holding company, potentially ushering in a new generation of Too-Big-to-Fail institutions.
"This is not a policy shift that should be considered lightly,' ICBA said. "To protect against a financial system dominated by the largest banks and mega crypto entities, ICBA urges Congress to preserve the integrity of the BHCA."
ICBA also asked that lawmakers on CLARITY keep the traditional 85% threshold for determining whether an entity is predominantly a financial firm, per the Bank Holding Company Act, rather than lowering it to a simple majority.
On the GENIUS Act, the stablecoin legislation that's closest to passing, ICBA asked that lawmakers explicitly prohibit nonbanks from having access to Federal Reserve master accounts. The current legislation only says that regulators should maintain the status quo.
And while the GENIUS Act prohibits stablecoins from offering yield, which would allow issuers to more directly disintermediate banks, ICBA urged lawmakers to ban workarounds, like other forms of incentives for consumers to park their money in a stablecoin rather than as a bank deposit.
"To fully protect against disintermediation, lawmakers must ensure issuers do not evade the prohibition on paying any form of yield through affiliate relationships with exchanges and other intermediaries," ICBA said.
"Importantly, we urge lawmakers to extend this prohibition to crypto exchanges themselves to ensure they cannot offer banking-like services that would lead to 'shadow banks.'"
The Independent Bankers Association of Texas voiced similar concerns about the separation of banking and commerce in a letter obtained by American Banker.
"Stablecoins have the potential to divert deposits away from community banks, weakening local lending capacity and exacerbating liquidity stress in a higher-rate environment," the group said in the letter. "By permitting nonbanks to issue stablecoins, the bill erodes long-standing protections that separate commercial enterprises from core financial infrastructure."
The Texas group also brought up concerns about a section of the GENIUS Act that would
The Independent Bankers Association of Texas asked the lawmakers that represent their state to strike that section from the bill, saying that it "enables a dangerous regulatory arbitrage, inviting lightly regulated entities to 'charter shop' and operate nationwide under the most permissive regime."
"Texas's state-chartered banks operate under a robust and respected regulatory framework," the group said. "Weakening state authority and allowing under-regulated entities to compete in this space undermines both safety and consumer confidence."
The Senate did make one change to that provision after pushback from state regulator groups — requiring that special purpose depository institutions have a payment stablecoin subsidiary that can operate outside of their host state.
But that doesn't solve the issue, according to a Monday letter to House leadership from the Conference of State Bank Supervisors obtained by American Banker.
The subsidiary provision would still "allow any state-chartered uninsured bank with a payment stablecoin subsidiary to engage in any money transmission or custody activities nationwide "through" the subsidiary. As a result, the uninsured parent would have unfettered authority to bypass host state oversight of traditional money transmission and custody activities."
"This section is also completely unnecessary for a nationwide stablecoin framework, as payment stablecoin issuers would already be authorized by the GENIUS Act to operate nationwide for specified stablecoin-related activities," the group said. "There is simply no justification for this sweeping preemption of state authority."
