TradFi Lobbies Against Crypto: The Banking Industry's Regulatory Battle for Survival

The American banking industry’s lobbying operation in Washington is the most experienced, best-resourced, and most politically connected financial services lobbying apparatus in the world. The American Bankers Association has spent over a century building relationships across Congress, in the Treasury Department, and in the Federal Reserve System. Its annual lobbying expenditures dwarf those of any crypto advocacy organisation. When the banking industry decided that crypto regulation was a threat to be managed, it brought all of this institutional capacity to bear.

Understanding TradFi’s lobbying against crypto requires understanding why established financial institutions feel threatened by digital asset competition — and the threat is real enough that the strategic response has been both aggressive and sophisticated.

Why Banks Feel Threatened

The threat that stablecoins and crypto pose to traditional banking is not theoretical. It is structural: stablecoins compete directly with bank deposits as a store of value in the payments ecosystem. A household that holds $10,000 in USDC rather than in a bank checking account has removed $10,000 from the bank deposit base that funds bank lending. At scale — if stablecoins captured 10% of the demand deposit base — the impact on bank funding costs and lending capacity would be significant.

Beyond deposits, crypto exchanges offering yield products compete with bank savings accounts and money market funds. DeFi lending protocols compete with bank personal and business loans. Payment stablecoins compete with bank-issued payment products and the network economics of the Visa and Mastercard systems through which banks earn interchange revenue. Each of these competitive threats is real and growing, and the banking industry’s lobbying response has been shaped by an accurate assessment of competitive risk.

The DeFi dimension is particularly existential in its implications: DeFi protocols that allow users to borrow, lend, and earn yield without any bank intermediary threaten not just bank revenue but the bank intermediation model itself. Banks exist because they serve intermediary functions — maturity transformation, credit assessment, payment clearing — that DeFi protocols are attempting to perform through automated, trustless mechanisms. If those mechanisms work at scale, the business case for bank intermediation weakens substantially.

The ABA’s GENIUS Act Strategy

The American Bankers Association’s engagement with the GENIUS Act — the legislation establishing a federal framework for payment stablecoins — was the most intense banking industry lobbying effort on any crypto-adjacent legislation to date. The ABA’s core concern was that a permissive stablecoin framework would allow non-bank entities — tech companies, crypto-native firms — to issue dollar-denominated payment instruments that would function as deposit substitutes without being subject to the regulatory requirements that apply to banks.

The ABA’s lobbying pushed for specific provisions in the GENIUS Act designed to constrain this threat: bank-only stablecoin issuance requirements (or at minimum, bank-charter requirements for major issuers), stringent reserve requirements that would make stablecoin issuance economically less attractive than bank deposit funding, and disclosure requirements calibrated to make stablecoin products less competitive with insured bank accounts.

Some of these provisions found their way into the bill as passed. The GENIUS Act includes a bank charter pathway for stablecoin issuers, capital and reserve requirements that reflect banking regulatory norms, and consumer protection provisions that the ABA had argued for. These provisions did not exclude non-banks from stablecoin issuance, but they raised the compliance bar in ways that advantage institutions already operating within bank regulatory frameworks.

JPMorgan’s Paradox: Public Skepticism, Private Engagement

Jamie Dimon, JPMorgan’s Chairman and CEO, has been the most prominent banking industry voice skeptical of cryptocurrency as an asset class. His 2017 characterisation of Bitcoin as a “fraud” was the most widely cited executive statement opposing crypto from the financial establishment. His subsequent, more nuanced positions — acknowledging blockchain’s utility while remaining skeptical of cryptocurrency speculation — positioned him as the responsible incumbent voice against crypto excess.

Simultaneously, JPMorgan has been among the most active financial institutions in building blockchain and digital asset infrastructure. JPM Coin — a blockchain-based payment system for institutional clients — was launched in 2020. JPMorgan’s Onyx division has built blockchain infrastructure for tokenized collateral, repo transactions, and institutional payments. The bank has issued tokenized bonds on blockchain platforms and participated in multiple central bank digital currency pilots.

This paradox — public skepticism, active private development — reflects a sophisticated two-track strategy. On the lobbying front, JPMorgan’s interests align with the banking industry’s general desire for stringent crypto regulation that advantages established institutions. On the business development front, JPMorgan is building the blockchain infrastructure that it expects will eventually be regulated in ways that favour licensed banks over crypto-native competitors.

The lobbying and the product development are coherent: push for regulations that require crypto activities to be conducted through bank-supervised entities, while simultaneously building the bank-supervised blockchain infrastructure that will dominate if those regulations succeed.

Goldman Sachs and the Institutional Investment Angle

Goldman Sachs’s lobbying engagement on crypto regulation has focused primarily on questions relevant to institutional investment — specifically, the regulatory treatment of crypto assets on institutional balance sheets, the securities law status of digital assets, and the bank custody rules that affect whether banks can hold crypto on behalf of clients.

The SEC’s Staff Accounting Bulletin 121 (SAB 121), which required banks holding crypto assets as custodians to record those assets as liabilities on their own balance sheets, was a particular target of Goldman and other bank lobbyists. SAB 121’s balance sheet treatment significantly increased the capital cost of bank crypto custody, effectively pricing banks out of the crypto custody market in favour of non-bank custodians. Goldman and other banks argued that this treatment was economically irrational and that it disadvantaged US banks in international competition.

The banks’ lobbying against SAB 121 was eventually successful: Congress passed a resolution disapproving SAB 121, which the Biden administration vetoed, but the Trump administration’s new SEC leadership subsequently revised the accounting guidance. This is an example of TradFi lobbying achieving a specific regulatory outcome on a question where bank interests and crypto industry interests aligned — both wanted banks to be able to offer crypto custody services.

The Successful Elements of Bank Lobbying

The banking industry’s lobbying on crypto regulation has produced mixed results that reflect the complexity of its position: some interests align with crypto industry interests (broader banking access to crypto activities, bank-chartered stablecoin issuers), while others conflict (stringent reserve requirements that constrain crypto-native issuers, consumer protection requirements that disadvantage non-bank competitors).

The most successful elements of bank lobbying in the GENIUS Act context were: the inclusion of bank charter pathways as one of the primary routes to stablecoin issuance legitimacy, reserve requirement provisions that reflect banking regulatory norms rather than more permissive standards that crypto-native issuers preferred, and consumer protection and redemption rights provisions that make stablecoin products more bank-account-like and therefore easier for bank-supervised entities to compete with.

The least successful elements were the failure to prevent non-bank stablecoin issuance entirely — a position some bank lobbyists pushed for that was never politically viable — and the failure to prevent crypto exchanges from accessing banking services, which bank-backed coalitions had sought to constrain through “debanking” pressure on bank regulators.

The Structural Tension

The banking industry’s opposition to crypto regulation that enables non-bank competition is a legitimate exercise of lobbying by an industry with real competitive interests at stake. But it sits in significant tension with the ostensible purpose of financial regulation, which is to serve the public interest in stable, accessible, and fair financial markets — not to protect incumbent financial institutions from competition.

When banks lobby for stringent reserve requirements on stablecoin issuers, they can dress the argument in the language of financial stability and consumer protection. Those concerns are not without merit — reserve requirements do protect stablecoin holders. But the requirement that reserves be held in specific forms, at specific ratios, in specific institutions, shapes who can be a viable stablecoin issuer in ways that have competitive as well as prudential dimensions.

Regulators and legislators evaluating TradFi lobbying on crypto need to distinguish between the prudential concerns that are genuinely in the public interest and the competitive concerns that serve incumbent interests. The distinction matters for whether the resulting regulatory framework serves the financial system or simply protects the financial establishment.