Can the GENIUS Act help small banks or hasten their decline?

The U.S. Senate is reviewing a proposal that could significantly alter the landscape of the nation’s banking sector, particularly for smaller institutions. The GENIUS Act (Granting Entrepreneurs, Investors, and Innovators the Urgent Support Act), introduced to bolster economic growth and innovation, has drawn criticism from Alabama Senator Tommy Tuberville, who has raised concerns about its potential to undermine the stability of small and regional banks. Tuberville argues that the bill’s provisions may disproportionately favor large financial institutions and technology firms, leaving smaller banks vulnerable to competitive disadvantages and increased operational risks.

Senator Tuberville’s concerns are rooted in the structure of the GENIUS Act, which includes measures designed to accelerate access to capital for startups and small businesses. While these provisions are intended to stimulate innovation and entrepreneurship, Tuberville has emphasized that they could inadvertently shift market dynamics in ways that favor larger banks with the infrastructure to handle increased volumes of capital disbursement and regulatory compliance. He has warned that this could accelerate the consolidation of the banking industry, a trend that has already been observed in recent years.

According to data from the Federal Deposit Insurance Corporation (FDIC), the number of small banks—defined as those with less than $10 billion in assets—has declined from over 12,000 in the 1980s to just under 4,500 as of 2024. Tuberville has cited this trend as a cause for concern, particularly if the GENIUS Act were to further erode the competitive environment for small banks. The senator has called for amendments to the bill that would ensure regulatory frameworks remain balanced and do not disproportionately burden smaller financial institutions.

The proposed legislation includes incentives for financial institutions to provide loans and support to startups, including tax credits and streamlined compliance procedures. While these incentives are broadly welcomed by venture capital firms and tech entrepreneurs, Tuberville has questioned whether the same benefits would be equitably accessible to small banks. He has highlighted that smaller institutions often lack the resources to navigate the complex application processes and compliance requirements tied to such incentives, potentially excluding them from participating in the growth opportunities the bill aims to create.

Financial analysts have weighed in on the debate, with some suggesting that the GENIUS Act could have the unintended effect of accelerating the trend of bank consolidation. “If the incentives are skewed toward larger institutions that can handle the administrative burden, we may see even more mergers and acquisitions in the banking sector,” one analyst noted. Others, however, argue that the bill could help level the playing field for startups by reducing the barriers to entry for securing capital, regardless of the size of the financial institution involved.

As the Senate considers the GENIUS Act, Tuberville’s concerns reflect a growing debate over the balance between innovation and financial stability. While the bill’s proponents emphasize its potential to spur economic growth and technological advancement, critics like Tuberville are calling for a more nuanced approach that protects the interests of smaller banks and ensures a more inclusive financial ecosystem.