Authors: Jasper Goodman, Michael Stratford, Declan Harty
Compiled by: Shenchao TechFlow
Powerful Wall Street groups are trying to stop some Republican proposals aimed at promoting the development of the cryptocurrency industry.
Cryptocurrency executives' substantial campaign contributions for the 2024 elections are having a profound impact on the banking industry. | Saul Loeb/AFP via Getty Images
The financial sector is caught in a lobbying civil war in Washington.
The conflict between cryptocurrency companies and banks and other Wall Street firms is escalating, mainly surrounding new digital asset rules promoted by Republican leaders. This conflict is expected to peak when Congress reconvenes after its August recess.
As President Donald Trump returns to the White House, the cryptocurrency industry has achieved a series of lobbying victories, including legislative reform of regulations on digital assets for the first time. Now, Republicans in Congress are preparing to pass a second, larger bill to promote the development of the crypto market, while Wall Street groups are beginning to slow down, warning that certain crypto-friendly reforms could disrupt their business and threaten financial stability.
Some banks are concerned that lending institutions may face deposit outflows as customers might turn to crypto products with looser regulations.
But this struggle is not limited to Congress. It has also spread to some more obscure corners of financial policy. For example, banking groups are trying to prevent cryptocurrency companies from seeking national bank charters. Meanwhile, executives from the cryptocurrency industry are lobbying the White House to maintain the ban on banks charging fees for customer data access. At the same time, some traditional financial firms are warning Wall Street regulators that they are trying to make stock trading look more like cryptocurrencies.
"Change is always difficult, especially for those who have already achieved success and are deeply entrenched in the organization, who will always feel a bit uneasy about upheaval," said Dan Zinn, general counsel of the over-the-counter (OTC Markets) that operates stock trading systems. "This will definitely make everyone alert, whether out of slight fear or slight excitement."
This conflict highlights the significant changes in lobbying dynamics around financial policy in recent months as Washington begins to embrace the cryptocurrency industry. The right's enthusiasm for the crypto industry has poured hundreds of millions of dollars into influencing Washington in recent years, often outpacing the interests of traditional financial firms that typically align with much of the Republican financial policy agenda.
This month, the lobbying battle has reached a fever pitch, with the banking industry association calling on legislators to retroactively amend a signed cryptocurrency law passed by Congress in July, provoking strong opposition from the crypto industry. (House Republicans are also pushing for retroactive amendments to the bill after choosing to accept the Senate version.)
For a long time, bankers have been skeptical of cryptocurrencies. Industry leaders, including JPMorgan CEO Jamie Dimon, have previously scoffed at digital assets, and their Washington agenda has long diverged from the goals of digital asset companies.
"This has been a territorial battle that has gone on for years, and frankly, we have not been able to achieve any regulatory clarity so far," said Ohio Republican Congressman Warren Davidson, a long-time ally of the crypto industry, who serves on the House Financial Services Committee.
However, for months, major trade associations representing the banking industry have only offered lukewarm public criticism of the rapidly evolving Republican legislation aimed at legitimizing regulation of digital assets.
They have become more outspoken after Trump signed a major bill last month that set new rules for so-called stablecoins (a type of cryptocurrency pegged to the value of the dollar). Groups like the American Bankers Association are now urging senators to amend the stablecoin law when reviewing a second, larger cryptocurrency market structure bill next month. They hope to stop all crypto companies from paying yields to customers holding stablecoins and abolish what they describe as a legal provision allowing state-chartered uninsured deposit institutions to operate nationwide without proper oversight.
This concern is particularly evident for small banks, which indicate that they may suffer losses due to customers withdrawing funds and depositing them into crypto products like stablecoins.
"It feels like there's a movement to replace us," said Christopher Williston, president and CEO of the Independent Bankers Association of Texas, which is the only major banking group to publicly oppose the stablecoin bill.
Williston stated that the stablecoin bill, known as the (Genius Act), poses a "fundamental threat to bank deposits" for small lending institutions. He also added that this new law feels like the "one thousand and first cut" after 15 years of regulatory burdens from reforms following the 2008 financial crisis.
Cryptocurrency companies that have lobbied for the stablecoin bill for years insist that this matter has been resolved.
The CEO of the leading industry trade organization Blockchain Association, Sumner Mersinger, stated that the (Genius Act) "is an established law." "There was intense debate in Congress over this, and the emergence of this bill is a compromise by policymakers. So we really shouldn't try to go back and revisit this issue."
Paige Pidano Paridon, executive vice president of the Bank Policy Institute representing large banks, stated that the organization hopes to work with the cryptocurrency industry to create "clear and fair rules."
She stated: "This is not a battle between banks and cryptocurrencies, but a joint effort to create rules that apply to everyone while protecting consumers and the financial system. The U.S. financial system is built on a foundation of trust, and when ordinary consumers cannot distinguish between safe and unsafe, risks increase and the competitiveness of the U.S. is undermined."
At the U.S. Securities and Exchange Commission (SEC), traditional financial institutions have been calling on Wall Street regulators to proceed with caution as the agency considers requests for 'tokenization of U.S. stocks' proposed by the cryptocurrency industry. Tokenization refers to placing such assets on the same blockchain as cryptocurrencies like Bitcoin and Ether.
Supporters argue that tokenization will help accelerate the speed of stock trading globally and reduce costs. However, organizations such as the Securities Industry and Financial Markets Association and trading giant Citadel Securities, led by Republican mega-donor Ken Griffin, argue that tokenized stocks should follow the same rules as the thousands of traditional stocks currently traded. Lobbyists expect the tokenization debate to play a role in the upcoming congressional discussions on a market structure bill that would delineate regulatory authority over cryptocurrencies. Senate Republicans have vowed to pass this bill this fall.
Indeed, the banking industry's influence in Washington remains undiminished, and CEOs of large banks continue to win victories in Oval Office meetings, while lending institutions benefit from the Republicans' comprehensive deregulation agenda. Some traditional financial industry figures are also beginning to favor the prospects of cryptocurrencies.
At the same time, the banking industry is contending with the political landscape shaped by the substantial campaign contributions from cryptocurrency executives in the last election—and is again hopeful about the upcoming midterm elections. Cryptocurrency is a top policy focus for the White House and Trump’s family has invested in several cryptocurrency companies.
These dynamics have made the industry a powerful force. At the Consumer Financial Protection Bureau, executives from the cryptocurrency industry successfully lobbied the Trump administration to abandon efforts to repeal the 'open banking' rules enacted during the Biden era that managed consumer data sharing in collaboration with large banks.
The policy prohibits banks from charging for access to this data, while fintech companies and cryptocurrency companies leverage this data to support their services and facilitate customer account creation and fund transfers. After cryptocurrency company executives intervened in collaboration with fintech firms, the Consumer Financial Protection Bureau (CFPB) is now reconsidering this rule rather than completely abolishing it.
"Banks still command respect," Davidson said, adding that Republicans have worked with the banking industry to roll back some regulatory measures in place since 2008. "But frankly, banks do enjoy benefits from other areas that protect them from market impacts in many ways."
