Intersection of Banks, Stablecoins and Politics in the United States 

The intersection of banks, stablecoins, and politics in the U.S. has created a contentious battleground, particularly around stablecoin yields and broader cryptocurrency regulation.

Stablecoins are digital assets pegged to stable fiat currencies like the USD, designed for payments, trading, and value storage without the volatility of other cryptocurrencies.

Their rapid growth—surpassing $200 billion in market cap by early 2026—has positioned them as a direct competitor to traditional banking deposits. The core conflict stems from the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, signed into law in July 2025, which established a federal framework for stablecoins but prohibited issuers from directly paying interest or yields to holders.

This was intended to prevent stablecoins from blurring lines with banking activities and to maintain separation between commerce and finance. However, the law left room for third-party platforms or “rewards” programs to offer yields indirectly, often through staking or other mechanisms, making stablecoins attractive alternatives to low-yield bank accounts.

Banks, which earn significant profits from the spread between what they pay depositors often near 0% and what they earn on reserves around 3-4% at the Fed, view this as an existential threat, potentially leading to a “deposit flight” that could erode their margins and lending capacity.

Politically, this has escalated into intense lobbying. Traditional banks and their allies in Congress, including figures on the Senate Banking Committee, argue that allowing stablecoin yields creates regulatory loopholes, enabling crypto firms to perform bank-like functions without equivalent oversight or capital requirements.

They frame it as a risk to financial stability, community banks, and the broader economy, pushing for amendments to close these gaps. On the other side, crypto advocates, including firms like Coinbase and Galaxy Digital CEO Mike Novogratz, accuse banks of protectionism to safeguard their oligopolistic profits at the expense of innovation and consumer benefits.

They point out that stablecoins could democratize access to yields, foster competition, and integrate crypto into mainstream finance, but entrenched interests are blocking this. This clash has stalled progress on the broader CLARITY Act, a bipartisan bill aimed at clarifying crypto market structure, including custody, trading, and oversight between agencies like the SEC and CFTC.

Despite support from both parties and the Trump administration’s pro-crypto stance, negotiations have dragged on due to the stablecoin yield debate, with Senate delays and last-minute lobbying derailing votes.

Efforts like Coinbase’s meetings with bank CEOs at Davos in January 2026 signal attempts at compromise, but public discourse on platforms like X highlights the impasse: crypto enthusiasts see it as banks undermining innovation, while some analysts warn of systemic risks if stablecoins bypass banking safeguards.

Ultimately, this political gridlock comes at the expense of regulatory clarity, which could accelerate U.S. leadership in digital finance amid global competition from places like Europe and China.

Without resolution, the U.S. risks lagging in tokenized assets and efficient payment systems, as the fight prioritizes incumbent protections over broader progress.

The ongoing collision between banks, stablecoins, and politics in the U.S. — particularly around the GENIUS Act (signed July 2025) and the stalled CLARITY Act — carries profound implications for financial stability, innovation, consumer access, and global competitiveness as of February 2026.

The GENIUS Act established a federal framework for payment stablecoins, restricting issuance to regulated entities with strict reserve requirements; 100% backing by high-quality liquid assets like Treasuries, audits, AML compliance, and a direct ban on issuers paying interest or yield to holders.

This was largely a win for banks, preventing stablecoins from directly competing as interest-bearing deposit alternatives and protecting their core business model: earning spreads on low- or zero-interest deposits while holding reserves at the Fed.

However, the loophole allowing indirect “rewards” via staking, liquidity provision, or third-party programs on platforms like Coinbase has become a flashpoint. Banks, led by the American Bankers Association (ABA) and executives like Bank of America’s Brian Moynihan, warn of massive deposit flight—potentially trillions of dollars shifting to yield-bearing stablecoin options.

This could: Raise banks’ funding costs forcing higher deposit rates or reliance on costlier sources like brokered deposits. Reduce lending capacity, especially for community banks funding local mortgages and small businesses.

Disrupt credit creation and increase borrowing costs economy-wide. Research including Fed analyses and even some crypto-funded studies supports this risk: yield-bearing stablecoins could drain $65 billion to $1.26 trillion from bank lending, accelerating “deposit substitution” and exposing banks to liquidity mismatches.

Banks are aggressively lobbying to close these gaps in the CLARITY Act, framing it as a financial stability imperative rather than protectionism. The GENIUS Act provided much-needed legitimacy and clarity, boosting adoption by embedding stablecoins in a regulated environment (market cap already over $200 billion).

It accelerated integration with traditional finance, with compliant issuers gaining credibility and attracting institutional use cases like tokenized assets and payments. Yet the yield ban limits consumer appeal—stablecoins remain low-yield compared to alternatives—pushing innovation toward workarounds that risk regulatory crackdowns.

Crypto firms argue these restrictions stifle competition, consumer benefits, and U.S. leadership in digital finance. A stricter ban could:Slow retail adoption and migration from low-yield bank accounts. Drive activity offshore or to unregulated/DeFi channels. Hinder platforms’ revenue models reliant on rewards.

The industry sees this as incumbents blocking progress, but some view it as necessary guardrails to avoid systemic risks like blockchain-enabled bank runs. The yield debate has derailed the CLARITY Act (Digital Asset Market Clarity Act of 2025), which aims to define SEC vs. CFTC oversight, custody rules, and market structure for broader crypto assets including tokenized securities and DeFi.

Despite House passage in 2025, bipartisan Senate progress stalled amid lobbying, committee delays, and failed White House compromises. Optimists predict passage by April 2026 under pro-crypto momentum, but Citi analysts and others warn delays could extend beyond midterms.

This impasse means: Lingering uncertainty hampers investment and innovation. The U.S. risks lagging behind clearer regimes (e.g., EU’s MiCA, Hong Kong’s licensing with yield allowances), where stablecoins integrate faster into payments and tokenization.

Unchecked yield-bearing stablecoins could trigger rapid deposit outflows during stress, but over-regulation might push activity underground or offshore, creating hidden fragilities. Prioritizing bank safeguards may preserve lending channels but slow tokenized finance, efficient payments, and DeFi growth.

Holders miss passive yields; everyday users gain safer stablecoins but lose competitive options. Regulated stablecoins could reinforce USD hegemony in digital payments—if resolved favorably—amid rising global alternatives.

This fight prioritizes short-term incumbent protections over comprehensive progress, stalling regulatory clarity that could accelerate U.S. digital finance leadership. Resolution likely via compromise on rewards is needed to balance stability with innovation; otherwise, the U.S. may cede ground in the tokenized economy while banks defend margins at the cost of broader advancement.