Traditional Banks Fight to Shrink Crypto's Regulatory Shadow

U.S. banking groups are intensifying their advocacy for amendments to the country’s regulatory framework surrounding digital assets, particularly in response to the rapid advancement of crypto-related legislation and policy shifts. The Bank Policy Institute (BPI), in collaboration with the American Bankers Association (ABA), has highlighted inconsistencies in the current financial regulatory landscape, including the Federal Reserve’s large financial institution (LFI) rating system. The LFI rating system, which evaluates bank performance based on three key components—capital planning, liquidity risk management, and governance—has been criticized for being overly punitive. Under the current framework, a bank receiving an unsatisfactory rating in any one of the three categories is deemed “less-than-satisfactory,” limiting its ability to expand services and make strategic business decisions. Over two-thirds of large banks have been rated as unsatisfactory under this system. The ABA and BPI have endorsed proposed reforms to the system, emphasizing the need for objective evaluation of material financial risks, greater transparency in ratings, and the alignment of rating thresholds with economic growth metrics [3].

The push for regulatory clarity has intensified as the U.S. Congress moves forward with the GENIUS Act, a landmark piece of legislation aimed at providing a framework for payment stablecoins. While the law represents a significant step in legitimizing the stablecoin market, it has drawn criticism from traditional banking entities. These institutions have raised concerns that the new regulatory environment could enable crypto firms to offer yield on stablecoin holdings, potentially drawing deposits away from banks and undermining financial stability. The American Bankers Association has called for amendments to the GENIUS Act, including banning yield on stablecoin balances and imposing stricter oversight on state-chartered depository institutions. These concerns are particularly acute for smaller banks, which fear losing market share to crypto-based alternatives [4].

The regulatory debate has also extended to data-sharing policies. The Consumer Financial Protection Bureau (CFPB) has taken steps to reassess its 2024 rule on consumer data sharing under Section 1033 of the Dodd-Frank Act. The BPI, along with the Kentucky Bankers Association and Forcht Bank, has emphasized the need for rules that prioritize consumer security over mandatory data sharing with third-party fintech or crypto entities. These groups argue that the CFPB’s current approach, which could require banks to share customer data without charge, puts consumers at risk by increasing exposure to potential data breaches and misuse [2]. The CFPB has issued an advanced notice of proposed rulemaking, seeking public input on issues including definitions of “consumer” and “representative,” cost implications for data access, and legal authority under the Dodd-Frank Act.

In a broader policy context, the U.S. approach to crypto regulation is being compared to the European Union’s Markets in Crypto-Assets (MiCA) framework. While the GENIUS Act is narrowly focused on stablecoins, MiCA provides a comprehensive regulatory regime covering most crypto assets and service providers across the EU. The U.S. regulatory approach, in contrast, continues to evolve in a more fragmented manner, with different agencies and jurisdictions applying varying standards. This divergence is raising concerns among financial institutions and industry experts about the long-term competitiveness of the U.S. financial system in a global market increasingly shaped by digital innovation [6].

The growing influence of crypto lobbyists in Washington has further complicated the regulatory landscape. With significant campaign contributions from crypto executives during the 2024 election and ongoing influence in the Trump administration, the sector has gained unprecedented access to policy decisions. This has led to a tug-of-war between traditional financial institutions and crypto advocates, with the former seeking to preserve existing regulatory advantages while the latter push for a more open and innovation-friendly environment. The outcome of this debate will have far-reaching implications for the structure of the U.S. financial system and the balance between consumer protection, financial stability, and technological progress [5].

Source:

[1] title1 (https://bpi.com/)

[2] title2 (https://bpi.com/banks-respond-to-cfpbs-reopened-section-1033-rulemaking/)

[3] title3 (https://financialregnews.com/american-bankers-association-bank-policy-institute-support-feds-proposed-changes-to-bank-rating-system/)

[4] title4 (https://www.politico.com/news/2025/08/23/banks-crypto-influence-lobby-washington-republicans-industry-00520995)

[6] title6 (https://www.ccn.com/education/crypto/mica-vs-genius-act-how-crypto-laws-differ-in-europe-and-the-us/)