Banks Fight to Kill Stablecoin Rewards Ahead of Jan 15 Senate Markup
Banks lobby to close the ‘exchange reward loophole’ in the GENIUS Act as stablecoin volumes hit $33 trillion, threatening $360B in traditional banking revenue.
The $360 Billion Protection Racket
U.S. banks are moving to crush crypto yield products days before a critical Senate vote. With the Senate Banking Committee scheduled to mark up market structure legislation, likely the CLARITY Act, on January 15, the American Bankers Association (ABA) has intensified lobbying efforts to close a regulatory “loophole” allowing exchanges to pay rewards on stablecoins.
Coinbase Chief Policy Officer Faryar Shirzad warned that the banking lobby is attempting to extend the GENIUS Act’s ban on issuer yields to third-party exchanges. The motive is arithmetic, not prudential. U.S. banks currently harvest roughly $176 billion annually from deposits parked at the Federal Reserve and another $187 billion from merchant swipe fees. That is a $363 billion revenue moat threatened by stablecoins, which offer yield without the overhead of physical branches.
The “Loophole” War
The conflict centers on the GENIUS Act, passed in mid-2025, which banned stablecoin issuers (like Circle or Tether) from paying interest. However, crypto exchanges circumvented this by offering “rewards” funded by their own revenue, passing the yield to users. The ABA’s Community Bankers Council argued in a letter to the Senate that this practice “risks disintermediating core banking activity” and siphoning trillions in deposits.
“Congress was clear that the GENIUS Act only prohibits interest/yield paid by the issuer, and nothing else. Banning rewards… would be a big assist to China’s efforts [to internationalize the digital yuan].” Faryar Shirzad, Coinbase CPO
Data: The $33 Trillion Threat
Banks are reacting to a genuine volume shift. Stablecoin transaction volume hit a record $33 trillion in 2025, a 72% jump year-over-year, according to Artemis Analytics. For context, this is nearly triple the volume of U.S. credit card purchases. While Tether (USDT) retains the market cap crown at $187 billion, Circle’s USDC dominated transaction flows with $18.3 trillion, driven by institutional adoption in North America.
Committee Chairman Tim Scott has confirmed the January 15 markup date, where lawmakers will decide if the new market structure bill will codify the banks’ demand to ban these third-party rewards. If the ABA prevails, U.S. crypto users could be forced into non-yield-bearing accounts, effectively cementing the banking sector’s monopoly on interest.
