WSJ: Banks Protest High-Yield Token, Crypto Regulatory Battle Continues to Simmer in Washington

BlockBeats News, January 16th, according to The Wall Street Journal, the crypto industry and the banking sector are engaged in an intense lobbying battle over a digital token that offers annualized returns, a move that could disrupt legislative efforts aimed at bringing cryptocurrencies into the mainstream financial system. The focus of the dispute is around what crypto companies refer to as "yield"—regular interest paid based on a holder's stake. Such mechanisms are particularly common in stablecoins.

From the banking perspective, the practice of companies like Coinbase offering around a 3.5% yield on stablecoins is seen as akin to high-yield deposits but without having to comply with the strict regulatory requirements banks face when taking public deposits. As a result, banking industry groups have sent numerous letters to lawmakers warning that this "yield-bearing stablecoin" could have a devastating impact on small and midsize banks in the U.S. In contrast, the current national average interest rate for a regular interest-bearing checking account in the U.S. is still below 0.1%. This debate was one of the reasons that led to the U.S. Senate Banking Committee's postponement of a vote on the cryptocurrency market structure bill scheduled for Thursday.

While JPMorgan Chase, Citigroup, and other major banks are resisting yield-bearing stablecoins, they are also working on developing their own cryptocurrency products and partnerships. Some banks, including Bank of America, are considering issuing their own stablecoins.

Analysts suggest that Coinbase withdrawing its support for the bill could pose a significant risk to its prospects, although other crypto firms have expressed their support. This dispute highlights a tense dynamic: on one side, the rapidly growing crypto industry in Washington is actively leveraging its increasing lobbying power, and on the other side, the traditional banking sector, which has maintained a close relationship with Congress for decades.

The U.S. Treasury estimated last year that stablecoins could draw as much as $6.6 trillion from the U.S. banking system, partly due to the "yield" offered by stablecoins. By comparison, as per the latest data from the Federal Reserve, as of early January, total deposits in U.S. commercial banks were around $18.7 trillion. The U.S. government provides insurance for deposits in individual accounts of up to $250,000, but at the same time, it imposes strict regulatory oversight on banks' operations and financial soundness.