For years, I have maintained that “banks get it all in the end”. I referred to the power that banks have at every level of government which could have killed crypto if Democrats won the 2024 election. But we may have escaped that fate, thank God.
There’s a showdown on Capitol Hill that may determine just how much power banks have over people. The GENIUS Act establishes a regulatory framework for stablecoin issuers, explicitly prohibiting them from offering yields to holders. This ensures stablecoins function primarily as payment tools, backed one-for-one by low-risk assets like U.S. dollars. On the other hand, the CLARITY Act, which is still pending, focuses on broader market structure for digital assets, allowing exchanges and infrastructure providers to offer yields derived from staking activities. This provision has drawn fierce opposition from banks, who argue it undermines financial stability and removes $6 trillion from custody. But a closer look reveals that banks are primarily safeguarding their entrenched interests, while passing the CLARITY Act as is, would level the playing field for consumers by fostering competition and innovation in the crypto space.
Banks’ Self-Interest in Opposing Staking Yields
Banks have been vocal in their resistance to the CLARITY Act’s staking yield provisions, often framing their concerns around risks to the banking system and consumer protection. Trade groups like the American Bankers Association (ABA) and the Conference of State Bank Supervisors (CSBS) have highlighted how stablecoins and related crypto infrastructure could disintermediate traditional banking, pulling deposits away from banks and into digital alternatives. They warn that non-bank entities accessing Federal Reserve services or offering yields could create unfair competition and inject uncertainties into the financial ecosystem. ROTFLMAO, that’s the point!! But it’s nowhere near unfair. Banks can and should compete with us, but not in a manner that’s unfair to us.
Yet, this opposition appears more about preserving banks’ lucrative business models than genuine systemic concerns. Under the GENIUS Act, banks enjoy significant advantages when issuing stablecoins. As regulated entities, and issuers, they can hold reserves and retain the interest earned on those assets—interest that, in a traditional bank account, might otherwise be passed on to depositors. This creates a built-in profit mechanism for banks, effectively allowing them to monetize stablecoin reserves without sharing yields with holders, as prohibited by the Act.
Moreover, banks stand to gain a new revenue stream from custody services. The GENIUS Act requires stablecoin issuers to maintain segregated reserves, often held by banks, which can charge fees for these custodial roles. With projections estimating the stablecoin market could reach up to $3 trillion by 2030 in a base case scenario (and potentially $3.7 trillion in a bullish outlook), this custody business represents a massive opportunity to offset any deposit outflows. Far from being victims, banks are positioned to thrive in this ecosystem, turning stablecoins into a boon rather than a threat.
The Fractional Reserve Advantage: Banks’ Hidden Edge
At the heart of banks’ profitability lies the fractional reserve system, which allows them to lend out a portion of deposits while holding only a fraction in reserve. This enables banks to generate interest rate spreads—profiting from the difference between what they pay depositors and what they earn on loans. In contrast, stablecoins under the GENIUS Act must be fully backed, eliminating the fractional reserve model for issuers and ensuring one-to-one redemption.
Consumers in the traditional banking system have little control over this process. During crises like the 2008 financial meltdown, depositors faced runs on banks, frozen assets, and bailouts, with no direct way to unwind their positions quickly. Banks’ opposition to the CLARITY Act ignores how crypto’s transparency and technology address these vulnerabilities. In the crypto world, users can verify collateralization on-chain and redeem or “unwind” their holdings with a single click—whether it’s exiting a stablecoin or unstaking assets. This user empowerment mitigates systemic risks by allowing rapid, individual responses to instability, unlike the opaque, centralized control of fractional reserves that went to hell in 2008 and again in 2022.
A Fair Playing Field: Empowering Consumers Through Competition
Passing the CLARITY Act without amendments would give non-bank exchanges and providers a competitive edge in attracting yield-seeking customers through staking—a feature banks can’t easily replicate due to regulatory constraints. But this isn’t unfair; it’s corrective. Banks already dominate under the GENIUS Act with their reserve interest retention and custody fees, not to mention their fractional reserve profits. Allowing non-banks to offer staking yields creates balance, driving innovation and giving consumers more choices.
For instance, a consumer frustrated with near-zero yields on bank deposits could turn to a crypto exchange for staking rewards, all while benefiting from the stability of regulated infrastructure that they can unwind in a single click if the proverbial s*&t hits the fan.
This competition could force banks to improve their offerings, ultimately benefiting everyone. Projections show the stablecoin market exploding to trillions by 2030, fueled by integration into traditional finance—growth that banks can participate in through custody and issuance.
Collateralized mortgage obligations, (“CMO”) and credit default swaps (“CDS”) are a great ideas. The way they were originated, traded, cleared and settled made them weapons of mass destruction which led to the bailouts in 2008. Under GENIUS and CLARITY, tokenization of CMOs will include downside protection that includes baked in CDS in one security which prevents the destruction of value and allow holders to unwind them in seconds in a single click instead of waiting for a centralized 14 year bankruptcy adjudication.
In the end, banks’ “violent” opposition to the CLARITY Act’s staking provisions reeks of protectionism. By passing the Act as is, lawmakers can foster a truly fair ecosystem where consumers—not just incumbents—reap the rewards of digital innovation. The future of finance isn’t about shielding banks; it’s about empowering users with control, transparency, and choice.
The post Opposing CLARITY: Banks Last Stand? appeared first on National File.