In the quiet halls of Washington, a powerful financial battle is brewing, one that could profoundly impact the wallets of everyday Americans. At its heart is a lobbying effort by major banks to restrict or even outright kill crypto reward programs offered by stablecoins. This isn't just a squabble over new financial technology; it's a strategic move to safeguard a colossal revenue stream totaling over $360 billion annually, a sum that effectively acts as a hidden $1,400 “tax” on every US household.
The numbers, starkly highlighted by Coinbase's chief policy officer Faryar Shirzad, reveal the true stakes. Traditional banks currently rake in a staggering $176 billion each year from the trillions of dollars they park at the Federal Reserve. On top of this, they collect another $187 billion from card swipe fees, a cost absorbed by merchants and ultimately passed on to consumers. These two revenue streams alone represent a massive, low-risk income for banks, and competitive stablecoin yields pose a direct threat to both.
The Fed's Ample Reserves: A Hidden Subsidy for Banks
For years, banks have benefited from an arrangement with the Federal Reserve that allows them to earn substantial interest on funds held as reserves. As of December 2025, these reserve balances reached an astonishing $2.9 trillion. In 2023 alone, the Fed paid out $176.8 billion in interest on these reserves, representing gross income for banks even before considering their own funding costs.
This "ample reserves" framework, a product of post-2008 financial policies, created a permanent pool of interest-earning deposits for banks, virtually risk-free. Stablecoins, which are often backed by conservative assets like Treasury securities, have the potential to replicate this yield for users directly. By offering competitive returns funded by the same Treasury bills that back bank reserves, stablecoins create a parallel system. This allows consumers to earn similar returns without their dollars first having to pass through traditional bank balance sheets. While this doesn't diminish banks' lending capacity, it certainly shifts who gets to capture the financial spread, cutting banks out of a lucrative passive income stream.
The $187 Billion Card Swipe "Toll Booth"
Beyond the Federal Reserve, another enormous revenue source for banks comes from card payments. In 2024, US card payments processed $11.9 trillion in purchase volume. For merchants to accept these payments, they paid a hefty $187.2 billion in acceptance and processing fees. This translates to an average cost of about 1.57% for every $100 spent. The vast majority of this revenue, about 90.8% of Visa, Mastercard, and American Express transactions, flows to just eight major issuers, leaving community banks with only a minor share.
Stablecoins present a direct challenge to this established order. On-chain payments using stablecoins can cost a mere fraction of traditional card network fees. Imagine the impact if stablecoins captured even a modest 5% of the current card purchase volume, which is roughly $595 billion. At current fee rates, this would mean $9.3 billion in annual savings for merchants. For banks, however, it represents $9.3 billion in foregone revenue, a figure that doubles to $18.6 billion if stablecoins achieve a 10% market share.
The scale of stablecoin transactions is already significant, reaching $33 trillion in 2025. While most of these occur within crypto markets, this demonstrates that the underlying infrastructure is robust enough to handle payment flows at an enormous scale, far exceeding the US card purchase volume. This makes the competitive threat very real, not just hypothetical.
The GENIUS Act and the Affiliate "Loophole" Debate
The legal framework governing stablecoins, known as the GENIUS Act, was signed into law in July 2025. This legislation specifically prohibits payment stablecoin issuers from paying interest “directly or indirectly.” However, a key point of contention has emerged: many crypto exchanges route rewards through affiliate programs, presenting them as loyalty incentives rather than direct interest payments. Banking groups, led by organizations like the American Bankers Association, argue that this practice constitutes a "loophole" and are vigorously lobbying Congress to extend the ban to “all affiliated entities and partners.” They seek to ensure that rewards routed via affiliates are treated as prohibited yield.
Debunking the "Deposit Flight" Narrative
Banking groups often frame their opposition as a prudential concern, warning that widespread adoption of stablecoin rewards could lead to significant deposit flight from traditional banks, thereby impairing their ability to lend. However, independent research paints a different picture.
A study commissioned by Coinbase, conducted by Charles River Associates, analyzed monthly data from 2019 to 2025 and found no statistically significant relationship between the growth of stablecoins like USDC and community bank deposits. Even under conservative, "harsh" assumptions, community banks were projected to lose less than 1% of deposits in a baseline scenario, and only 6.8% in an extreme case. Similarly, Cornell researchers concluded that stablecoin rewards would need to approach 6% to meaningfully impact deposits. Current programs typically range from 1% to 3%, funded by yields on Treasury bills. While competitive with high-yield savings accounts, these rates are not so transformative as to trigger mass deposit migration and destabilize the banking system.
The Growing Power of Stablecoin Rewards
Stablecoins generate yield passively, as their issuers hold reserves in Treasury bills, which currently yield between 3% and 5%. If platforms pass through even half of this yield as rewards to users, the potential payout pool scales directly with the overall stablecoin supply.
With today's market capitalization of roughly $307.6 billion, a reward rate of 1.5% to 2.5% would translate to annual user payments of $4.6 billion to $7.7 billion across the industry. Should the stablecoin supply grow to $1 trillion, that same math would produce a staggering $15 billion to $25 billion annually in rewards for users. This level of distribution would directly compete with both low-yield checking balances and existing credit card rewards programs, the latter of which are ultimately funded by merchant fees.
A Battle for Control, Not Just Prudence
The incentives behind the banks' lobbying efforts become much clearer when viewed as a defense of their profit margins. The $176 billion earned from reserve balance interest and the $187 billion from card fees represent significant revenue streams that require minimal lending risk. Reserve balances yield a comfortable spread over what banks pay depositors, and card fees extract value from virtually every purchase made. Stablecoins, by their very nature, compress both these margins by introducing direct competition at the payment layer and by offering users a direct pathway to Treasury yields.
Therefore, the policy debate isn't truly about whether stablecoins will reduce banks' lending capacity. Instead, it's about whether established financial institutions can secure a regulatory advantage that prevents stablecoins from becoming genuine substitutes for traditional transaction accounts. Banks want to control the "restructuring" of deposits that stablecoins enable. They envision bank-issued tokenized deposits that keep balances within their regulated perimeter, allowing them to offer "on-chain dollars" while still retaining the deposits and the associated spread.
National Security Implications of a Yield Ban
The interpretation of the GENIUS Act will determine the future of stablecoin rewards in the US. A narrow interpretation would apply the ban solely to stablecoin issuers, allowing exchanges and platforms to continue offering rewards through affiliate programs, lending returns, or trading fees. This approach would preserve competition and allow stablecoins to remain an attractive alternative for consumers.
However, a broad interpretation, as advocated by banking groups, would extend the ban to affiliates and platforms, effectively stifling most stablecoin reward programs. This would mean stablecoin holders would receive no compensation for the value their deposits create, even as traditional banks continue to earn significant interest on their reserves.
This policy choice also carries significant national security implications. Consider that China has already announced it will pay interest on its digital yuan, explicitly positioning it to compete with dollar-denominated stablecoins. If US policy bans stablecoin rewards while foreign digital currencies offer yields, it could undermine the global competitiveness of the US dollar in the digital age. Pro-crypto lawyer John Deaton has aptly called a US reward ban "a national security trap," suggesting it would be a strategic misstep.
Ultimately, Congress faces a crucial decision: to interpret the GENIUS Act narrowly, fostering competition and potentially benefiting consumers, or broadly, protecting incumbent bank margins and their $360 billion revenue machine. While banking groups frame this as a concern for deposit stability, the underlying numbers reveal it to be a fierce fight over revenue, and whether stablecoins will be allowed a fair chance to compete for it.
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