Wall Street Strikes Back
For the past year, it felt like we were a long way from the moment in Congress when Sen. Dick Durbin (D-IL) lamented that big banks “own the place.” As the Trump administration took power, a pitched battle emerged between the financial industry and Silicon Valley on a range of issues, and the tech oligarchs, with better connections to MAGA-world and more ability to enrich the Trump organization directly, seemed well positioned to win. The power center seemed to be shifting away from its traditional roots.
But Wall Street didn’t become Wall Street by losing its ability to capture the government. A scuttled markup on a bill with major implications for cryptocurrencies shows that reports of the demise of big banks are greatly exaggerated. In fact, they’re doing better than ever.
The bill, known as the Digital Asset Market Clarity Act (sometimes also referred to as the Responsible Financial Innovation Act), would change the regulatory “market structure” for crypto. Its goal is to move primary jurisdiction over digital assets from the Securities and Exchange Commission to the less aggressive and less well-resourced Commodity Futures Trading Commission. This is the biggest ask from a crypto industry that basically bought Congress in 2024, and bipartisan negotiations have been in motion for months to deliver this to them.
But the window dressing around the bill has captured the attention of lobbyists, particularly the warring factions in the tech and banking worlds. The real sticking point is a holdover from the last bipartisan deregulation of the crypto industry, the so-called GENIUS Act that passed last year. That law put forward a light-touch regulatory regime for stablecoins, a money-like digital token that’s usually pegged to the U.S. dollar and is useful in trading for other crypto assets.
The GENIUS Act restricted stablecoins from paying interest, thereby preventing them from competing with traditional bank deposits. But the crypto industry figured out ways around this: namely, “rewards” paid annually to stablecoin holders. Coinbase’s stablecoin, for example, pays out a 3.5 percent reward on a user’s total value. That looks a lot like a high-yield savings account, without the crypto company having to deal with the bank regulatory requirements for capital and leverage that banks must adhere to.
U.S. banks took in $593 billion in revenue last year, close to a record number and well above 2024.
Coinbase can give out this 3.5 percent reward because it charges other crypto exchanges a fee, almost like a swipe fee that credit cards charge on purchases, for transactions with its stablecoin. That fee is then mostly turned over to the user, building market share for the stablecoin and volume in transactions.
This has absolutely terrified the banking industry, which fears losing deposits, a relatively cheap form of funding for its other activities, to stablecoins. Banks got very involved in the market structure bill to try to head off yield-bearing stablecoins and got members of the Senate Banking Committee on board. Sources have told the Prospect that Sens. Katie Britt (R-AL) and Thom Tillis (R-NC), who represent states with a high concentration of large regional banks, were prepared to vote down any market structure bill in committee that didn’t deal with the yield issue.
The version of the Clarity Act that the Banking Committee was going to mark up last Thursday restricted stablecoin yields on exchanges to a certain degree, but not enough for banks to declare victory. They were still lobbying on the provision right up until Wednesday afternoon, when Coinbase CEO Brian Armstrong announced that he couldn’t support the Clarity Act for a variety of issues, the biggest being “draft amendments that would kill rewards on stablecoins, allowing banks to ban their competition.” He had other problems with the bill, but clearly losing the ability to attract customers to its baseline product is the big one.
It was a little surprising, because just one day earlier, Coinbase had told its industry allies to shut up and support the bill, even with the yield language. The communication intimated that Coinbase could live with what existed. But Armstrong’s announcement totally reversed course. And within hours, the Senate Banking Committee then abruptly canceled the markup.
It is true that this reflects the power of Coinbase and other large crypto firms in Washington. But beneath that surface, Coinbase realized that it was losing to the banking industry on its fight for yield. So the Senate had to call the whole thing off; after all, if the leading lights of the crypto industry don’t like your crypto bill, what point is there in passing it?
And once you realize that the banks won a round here, their alleged struggles during Trump’s second term take on a new focus. The fact is that U.S. banks took in $593 billion in revenue last year, close to a record number and well above 2024. Trump has been consumed with making the line go up in stock markets, and banks do a lot of trading. Banks also advise on merger deals, and Trump has gotten out of their way. And lending to hedge funds, also buoyed by the “number go up” imperative, surged for banks last year.
The ways in which Trump is allegedly “taking on” Wall Street are purely performative. The credit card interest rate cap isn’t going to manifest in any legislative action, but only some lame introductory offers by credit card issuers that will amount to approximately nothing. Banks get to launder their good reputation for “lowering” interest rates, only to use that as a lure for more customers. On everything that matters, Wall Street remains virtually unchallenged.
OF COURSE, THIS IS NOT THE END OF THE LINE for the Clarity Act. Desperate-to-please senators are still talking to the industry to fashion a compromise, presumably to insert some loophole so they can continue to offer yield and attract customers. The banking industry will likely remain engaged and keep their mouthpieces in the Senate, Tillis and Britt, at the ready.
The real question is why Democrats are involved in this at all. Seventeen Democrats joined Republicans on the GENIUS Act, and some of those members are setting up calls with crypto companies, presumably to find a way forward. If enough Democrats go along, the bill could make it out of committee, and they are clearly trying to find a way to get to yes.
Were stablecoin rewards the only thing at issue in the Clarity Act, you could talk yourself into being OK with the big banks getting a little competition. But everything else in the bill is pretty horrendous, if you believe in things like the stability of the country’s economy.
The Clarity Act clearly seeks to evade SEC oversight on jurisdiction over securities, through a self-certification process where the companies claim they are merely issuing “network tokens.” Some of the major purposes of crypto, like facilitating money laundering, would still be allowed to exist. Consumer and investor protections against fraud aren’t all that enforceable; former SEC chief accountant Lynn Turner said in a letter to senators that the current draft could lead to another FTX, Sam Bankman-Fried’s Ponzi-style scheme that collapsed in 2022. Individuals would not have the ability to sue if things went awry. Even sketchy non-crypto products like junk bonds, penny stocks, or hedge fund prop trades could be made permissible to trade by banks with customer money as long as they were “put on the blockchain” and turned into a digital asset.
Perhaps most bafflingly, there is nothing in this bill that would stop the president of the United States and his family from extracting more than a billion dollars in cash gains from having a crypto business, a clear and obvious conflict of interest. (Most recently, the Trump Organization’s crypto firm, World Liberty Financial, is seeking and will likely get a banking license.) Democrats briefly got embarrassed by passing a deregulatory bill when Trump was gorging himself on crypto cash, and they demanded some “ethics” reform as a condition for moving forward on market structure. But the draft version didn’t give an inch on that, clearly in the belief that Trump wouldn’t sign anything that constrained him.
Pro-crypto Democrats were according to my sources prepared to vote no on the Clarity Act in the markup, because of the lack of ethics reform. But the fact that they’re scheduling talks with the industry suggests that they’d happily take something they could call reform and vote yes.
In the last big bill, Democrats voted the GENIUS Act out of committee to move the process along, hopeful to get some of what they wanted in later negotiations. They got hardly anything, and then voted for it anyway. A similar strategy of letting the bill go to the floor while asking for fixes later was described to me as insanity.
To the extent that this power play with the banks leads to a victory for the crypto industry and a loss for the future of financial stability, it’s in the hands of some wavering Senate Democrats.
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