Banks are combating stablecoin rewards to protect a secret $360 billion income machine.
When Coinbase chief coverage officer Faryar Shirzad posted a thread on Jan. 8 warning that stablecoin rewards “stay below debate” as Congress marks up market construction laws, he hooked up numbers that banking teams would somewhat maintain quiet.
US banks earn $176 billion yearly on roughly $3 trillion they park on the Federal Reserve, and so they gather one other $187 billion from card swipe charges, practically $1,400 per household.
That is over $360 billion in income from funds and deposits alone, and stablecoins with aggressive yields threaten each streams directly.
The GENIUS Act, signed in July 2025, bans stablecoin issuers from paying curiosity or yield “straight or not directly.” But, exchanges route rewards via affiliate applications, treating them as loyalty incentives somewhat than curiosity.
Banking teams name this a loophole. The American Bankers Affiliation, joined by 52 state banking associations, sent a letter to Congress on Jan. 6 urging lawmakers to lengthen the ban to “all affiliated entities and companions.”
The numbers inform a completely different story about who really advantages from the present association.
Hidden subsidy
Banks maintain reserve balances with the Federal Reserve totaling $2.9 trillion as of December 2025.
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The Fed paid $176.8 billion in interest on these reserves in 2023, gross earnings to banks earlier than their very own funding prices. Reserve balances existed in trivial quantities earlier than 2008.
The Fed’s adoption of an “ample reserves” framework after quantitative easing created a everlasting pool of interest-earning deposits that banks can maintain with zero credit score danger.
The Fed’s December 2025 choice to begin purchasing Treasury bills indicators that reserve balances will not shrink a lot additional.
If stablecoins supply aggressive yields funded by the identical Treasury securities that again reserves, they create a parallel system the place customers can earn related returns with out routing {dollars} via financial institution steadiness sheets.
That does not remove financial institution lending capability, as stablecoin issuers maintain reserves in Treasury payments and financial institution deposits, but it surely shifts who captures the unfold.
The $187 billion toll sales space
US card funds processed $11.9 trillion in buy quantity in 2024, and retailers paid $187.2 billion in acceptance and processing fees. This suggests a price of about 1.57% per $100 of spending.
Nilson Analysis reveals that the eight largest issuers account for 90.8% of Visa, Mastercard, and American Categorical buy transactions. Group banks maintain a minor share of this income pool.
Debit interchange alone generated $34.1 billion in 2023, with community charges including one other $12.95 billion. Bank card interchange is considerably greater.
Stablecoins bypass this infrastructure, since on-chain funds price a fraction of card community charges. If stablecoins seize even 5% of card buy quantity, which is roughly $595 billion at present price charges, that represents $9.3 billion in annual service provider financial savings.
For banks, it is $9.3 billion in foregone income, which doubles to $18.6 billion at 10%.
Stablecoin transaction worth hit $33 trillion in 2025, in accordance to Artemis, which makes the aggressive risk past hypothetical. That is roughly thrice the US card buy quantity.
Most of these transactions happen inside crypto markets, however the infrastructure already handles cost flows at scale.
Banking teams body their opposition as a prudential concern, warning that deposit flight will impair lending.
Charles River Associates, in analysis commissioned by Coinbase, examined this utilizing month-to-month knowledge from 2019 to 2025 and located no statistically significant relationship between USDC development and neighborhood financial institution deposits.
Even below harsh assumptions, neighborhood banks would lose lower than 1% of deposits in a baseline state of affairs and 6.8% in an excessive case.
Cornell researchers reached a similar conclusion: rewards would want to strategy 6% to have an effect on deposits meaningfully. Present applications vary from 1% to 3% and are funded by Treasury invoice yields.
That is aggressive with high-yield financial savings however not transformative sufficient to set off mass deposit migration.
Reserve funds scales mechanically
Stablecoins generate yield passively, since issuers maintain reserves in Treasury payments yielding 3% to 5%. If platforms move via half of that yield as rewards, the payout pool scales straight with excellent stablecoin provide.
At right now’s market cap of roughly $307.6 billion, a 1.5% to 2.5% reward fee implies annual consumer funds of $4.6 billion to $7.7 billion throughout the business. If stablecoin provide grows to $1 trillion, the identical math produces $15 billion to $25 billion yearly.
That form of distribution competes with each low-yield checking balances and bank card rewards applications, in the end funded by service provider charges.
Financial institution incentives turn into clearer when framed as a protection of margin.
The $176 billion in reserve steadiness curiosity and $187 billion in card charges symbolize income streams that require no lending danger. Reserve balances earn a unfold over what banks pay depositors, and card charges extract worth from every buy.
Stablecoins compress each margins by introducing competitors on the cost layer and providing customers a direct declare on Treasury yields.
The coverage struggle is not about whether or not stablecoins scale back lending capability. It is about whether or not incumbents can lock in a regulatory benefit that stops stablecoins from functioning as substitutes for transaction accounts.
What GENIUS really prohibits
The GENIUS Act makes it illegal for a cost stablecoin issuer to pay curiosity “straight or not directly,” explicitly together with preparations via associates.
Banking teams argue that exchange-based reward applications violate this provision. Crypto platforms counter that the statute targets issuers, not intermediaries.
The Financial institution Coverage Institute wants clarifying language in market construction laws to guarantee “rewards routed by way of associates” are treated as prohibited yield.
That place reveals the technique: forestall stablecoins from turning into another to interest-bearing accounts by any means. If profitable, stablecoin holders obtain no compensation for the worth their deposits create, whilst banks earn 3% to 5% on reserve balances.
Aggressive endgame
Fed researchers word that stablecoins can “reduce, recycle, or restructure” deposits. Banks need the restructuring on their phrases: forbid stablecoin rewards whereas providing bank-issued tokenized deposits that maintain balances contained in the regulated perimeter.
Customers get on-chain {dollars}. Banks maintain the deposits and the unfold.
Nonetheless, stablecoin platforms have a completely different principle. If the yield ban applies solely to issuers, exchanges can compete via affiliate income, lending returns, or buying and selling charges. That retains stablecoins engaging with out requiring issuers to pay curiosity straight.
China introduced it would pay interest on the digital yuan, explicitly competing with dollar-denominated stablecoins. If US coverage bans rewards whereas overseas digital currencies supply yields, the aggressive implication turns into a nationwide safety concern.
Professional-crypto lawyer John Deaton referred to as a US reward ban “a national security trap.”
Congress decides whether or not to interpret GENIUS narrowly, making use of it solely to issuers, or broadly, extending it to associates and platforms.
The slim interpretation preserves competitors. The broad interpretation protects incumbent margins.
Banking teams body this as a struggle about deposit stability. The numbers present it is a struggle about $360 billion in income and whether or not stablecoins get a probability to compete for it.
