Why Are Banks Fighting to Gut the GENIUS Act?

Legacy finance is scrambling to rewrite the rules before they become obsolete.

The Growing Institutional Clash

It's not about minor tweaks. Major banking consortiums are lobbying hard to insert compliance carve-outs and custody requirements into the proposed GENIUS Act that would, conveniently, force crypto back into their existing—and profitable—infrastructure. The goal seems less about consumer protection and more about maintaining a lucrative gatekeeper role. After all, why innovate when you can legislate your competition into a box?

A Direct Threat to the Old Guard

The GENIUS Act, as drafted, represents a fundamental threat. It proposes clear pathways for digital asset firms to operate with federal legitimacy, bypassing the need for a traditional banking charter for core services. This cuts directly into their territory—custody, payment rails, and asset issuance. Banks see a future where their intermediation is optional, and they're pulling every political lever to stop it.

The Stakes for Crypto's Future

This isn't just bureaucratic squabbling. The outcome determines whether the U.S. digital asset ecosystem grows with competitive, native institutions or remains a captive subsidiary of Wall Street. The banks' proposed changes would slow innovation to a pace they can control and tax. It's the financial equivalent of demanding a toll for a road you didn't build.

The fight over the GENIUS Act exposes the core tension: established powers protecting their rent-seeking business models against an open, protocol-based future. The next few months will reveal if policymakers believe in competition or just comfortable oligopoly.

Why are banks trying to change the GENIUS Act?

The GENIUS Act is the result of several months of Congressional negotiation to create a regulatory framework for stablecoins in the United States. The legislation reached a compromise between banks and stablecoin issuers that prohibits stablecoin issuers from paying interest directly to holders, but allows platforms and third-party services to offer rewards and yields. 

However, according to Coinbase CEO Brian Armstrong and crypto advocate Max Avery, the banking lobby is now pushing to reopen these settled provisions. 

Avery posted on X that banks claim their lobbying efforts are due to “safety concerns” and worries about “community bank deposits,” but independent research shows no evidence that community banks are losing deposits at an unusual rate. 

The real issue is that traditional banks currently earn over 4% interest on customer deposits at the Federal Reserve while they pay customers approximately 0.01% interest on savings accounts.

He went on to advise community members to be careful about amendments that WOULD ban “rewards” instead of just directing interest payments from issuers, as that would effectively close the loophole that allows third-party platforms to share yields with stablecoin users. 

He also questioned whether legislators concerned about stablecoin yields have ever addressed why bank savings rates have remained stagnant for fifteen years despite significant changes in Federal Reserve rates.

Why does Coinbase consider this a red line issue?

Coinbase has declared that preventing any reopening of the GENIUS Act is a “red line issue” for the company. Coinbase joined other crypto companies in supporting a letter organized by the Blockchain Association, Stand With Crypto, and the North American Blockchain Association to show that the industry is against these lobbying efforts as a whole.

Max Avery argues that if Congress allows the banking lobby to reopen and modify settled legislation, leading financial institutions can continuously chip away at frameworks designed to enable new competition. 

He pointed out that fintech companies considering entering U.S. markets are closely monitoring whether legislation “actually sticks” or can be repeatedly modified to protect current profit margins.

Armstrong made a bold prediction that banks will eventually reverse their position and lobby for the ability to offer stablecoin yields once they recognize the market opportunity. He called the current banking lobby efforts “100% wasted effort” and “unethical.”

“My prediction is the banks will actually flip and be lobbying FOR the ability to pay interest and yield on stablecoins in a few years, once they realize how big the opportunity is for them. So it’s 100% wasted effort on their part (in addition to being unethical).

The innovator’s dilemma is undefeated.” He wrote.

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