A group of lobbying groups for the banking industry recently sent a letter to U.S. senators asking them to remove an entire section of the recently passed GENIUS Act that they argue bypasses existing state licensing and oversight.
Specifically, the groups are opposed to a section of the stablecoin law that allows any state-chartered uninsured depository institution with a stablecoin subsidiary to perform traditional money transmission and custody activities nationwide through that subsidiary.
“This unprecedented overriding of state law and supervision weakens vital consumer protections, creates opportunities for regulatory arbitrage, and undermines state sovereignty,” the letter reads.
It adds that this section of the law is “allowing certain uninsured depository institutions special privileges to operate across state lines as federally insured banks currently do, but without the panoply of regulatory and supervisory requirements, or limitations on preemption applicable to those institutions."
Banks are insured in ways that most crypto firms are not, so the notion that the law is “allowing certain uninsured depository institutions special privileges” would seem to indicate that Wall Street is calling out digital-native firms that are not regulated like traditional financial services firms.
In other words, it’s two worlds inevitably colliding now that crypto has gone mainstream.
In a separate letter from the American Bankers Association and other lobbying groups, they argue that the law contains a loophole by banning issuers themselves from offering interest,but not preventing affiliates or exchanges from doing so.
Citing a recent report from the Treasury Department, they say this loophole could drain as much as $6.6 trillion in deposits from the U.S. banking system.
The bank lobbyists were joined by the Americans for Financial Reform and the National Consumer Law Center – two consumer-protection groups that are normally pitted against Wall Street.
“Uninsured depository institutions present distinct risks, and individual states have a strong interest in safeguarding their residents from the heightened risk of financial harm if such institutions fail or if they harm consumers,” the letter continues.
The GENIUS Act was signed into law by President Trump in June, making it the country’s first-ever stablecoin legislation.
However, the broader legislation to regulate the U.S. crypto market is still pending and the bank lobbyists are seeking for Congress to change the stablecoin law through this crypto legislation.
Crypto industry advocates for ‘level playing field’
But the crypto industry lobby pushed back against Wall Street’s efforts to rewrite the stablecoin law in its own letter to Congress this week.
The letter sent to Senate Banking Committee leaders from the Crypto Council for Innovation and the Blockchain Association argue that the banking lobbyists “unfortunately seek to create an uncompetitive payment stablecoin environment, protecting banks at the expense of broader industry growth, competition, and consumer choice, which form the bedrock of America’s vibrant financial and innovation landscape.”
They cite a July 2025 study by Charles River Associates that “found no statistically significant relationship between stablecoin adoption and deposit outflows from community banks,” disputing the concern raised by the banking lobbyists.
“In fact, the overwhelming majority of stablecoin reserves remain in the traditional financial system, either in commercial bank accounts or in short-term Treasuries, meaning they continue to support liquidity and credit,” the letter states.
They add that a “level playing field” demands that both banks and crypto firms be allowed to develop an intermediated and competitive market, which they say “is especially important for underbanked consumers who increasingly rely on digital wallets for payments and as a store of value.”
“Eliminating these features for stablecoin users, while allowing them in the banking sector, would tilt the playing field in favor of legacy institutions, particularly larger banks, that routinely fail to deliver competitive returns and deprive consumers of meaningful choice,” they write.
Faryar Shirzad, the chief policy officer at Coinbase, also pushed back at the banking lobbyists in a post on X, accusing them of “fearmongering” by arguing that the crypto firms could drain more than $6 trillion from the U.S. banking system.
The banking lobby's claim that stablecoins will cost them $6 trillion in deposits is mind blowing — and not in a good way. Here's the truth: while we're excited about stablecoins, nobody credible is predicting a $6T market. Let's unpack why this number is pure fiction. pic.twitter.com/6a1gdSTJ6t
undefined Faryar Shirzad 🛡️ (@faryarshirzad) August 14, 2025
“I repeat: nobody credible is predicting a $6T stablecoin market,” he said. “Not @USTreasury. Not the @federalreserve. Not even the crypto ‘bulls.’”
Shirzadi argued that consumers should decide where they want to invest their stablecoins.
“Congress shouldn't be in the business of passing legislation that takes away consumer choice and the opportunity for the average person to earn returns on their hard earned dollars,” he said.
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