Washington is weighing a crypto bill that could give U.S. banks and credit unions a lot more room to handle digital assets, while also opening up a messy fight over stablecoins, state enforcement, and deposit flight.
- CRS says the Senate version would open 11 crypto activity categories
- House and Senate drafts do not treat bank crypto powers the same way
- Stablecoin rewards have triggered a bank lobby backlash
- The Fed is still building GENIUS Act stablecoin rules
- AML duties still apply, no matter how much Congress rewrites the plumbing
The Congressional Research Service, in a report titled Crypto and Bank-Permissible Activities and published Sept. 30, says the Senate-reported version of H.R. 3633: Digital Asset Market Clarity Act would make 11 categories of crypto activity available to banking organizations and credit unions. The point is not that banks would suddenly become crypto startups. The point is that the rules of the game could change enough to let them play a lot deeper in the market than they can today.
That matters because the bill is not just about whether banks can “touch crypto.” It is about where those activities sit, who supervises them, and whether lawmakers keep riskier functions inside separate affiliates or let them sit closer to insured banking entities.
For readers who do not live inside bank-regulation spreadsheets, that distinction is the whole ballgame. An insured bank is the core institution that holds deposits and sits under tight federal oversight. A nonbank subsidiary is a separate company under the same corporate umbrella, often used to ring-fence more volatile activities away from the insured bank. In plain English: one setup keeps the wild stuff behind a thicker wall.
CRS says the Senate-reported text would not preserve that line the way the House-passed version does. The House version would allow digital assets or blockchain technology to be used for activities already permitted by law, and it would route certain crypto activities into nonbank subsidiaries of financial holding companies rather than into insured bank subsidiaries.
The Senate-reported text appears broader in a different way: CRS says it would let all types of banking organizations and credit unions undertake the listed crypto activities. That includes examples such as digital asset underwriting and dealing.
Those terms sound technical because they are. Underwriting means helping issue or distribute an asset. Dealing means buying and selling it as a business function. CRS says those permissions would go beyond what banks can currently do in comparable traditional securities markets.
That is not a small policy tweak. It would move banks from being cautious observers to being active market participants. Whether that is good or bad depends on your view of bank safety, competition, and how much of crypto should be absorbed into the legacy financial system versus built around it.
Sen. Cynthia Lummis took the pro-Bitcoin case one step further, arguing the legislation would allow U.S. banks to buy and hold Bitcoin directly. She said that kind of demand could push Bitcoin prices “dramatically” higher.
That is her view, not a law of nature. Maybe bank demand would matter. Maybe it would be noise compared with spot ETFs, corporate treasury buying, or plain old macro liquidity. Price talk is easy. Proven market impact is harder. Anyone promising a clean number here is probably selling something, and possibly wearing a very shiny hat.
The Senate process itself has already stumbled. On Sept. 15, the chamber rejected cloture on the motion to proceed with H.R. 3633 by a vote of 49 to 50, short of the 60 votes needed to open debate. Seven Democratic senators later described the setback as “not the end” and said they remained committed to negotiations.
That procedural failure matters because cloture is the Senate’s gatekeeping tool. If the chamber cannot agree to end debate and move forward, the bill is stuck where it is. Plenty of flashy crypto legislation has died in that same swamp of rules, egos, and election-year theater.
The stablecoin fight may be even more important
Before the Senate vote stalled, eight banking associations wrote to lawmakers demanding changes to the bill’s stablecoin incentive language, especially Section 10404. Their concern was simple: stablecoin rewards could function a lot like deposit interest, and if customers chase those rewards, money could leave banks.
The banking groups put it bluntly: “Deposits are the foundation of the banking system.”
They are not wrong about the mechanics. Banks lend against deposits. If deposits flow out, loan-making capacity can tighten for households, farmers and businesses. That is the old-school banking argument, and it is not nonsense just because the crypto crowd hates hearing it.
At the same time, crypto supporters see the same issue as a competition problem. If stablecoin products can offer better rewards or faster settlement, users should be free to move their money. In that view, banks are not protecting stability so much as protecting a privileged funding base. Both sides have a point, which is why this fight keeps coming back dressed in different legal language.
A revised Republican proposal would give the Treasury secretary authority to restrict certain rewards if stablecoins caused substantial deposit outflows from community banks. That is a more targeted backstop, but it also shows how hard lawmakers are trying to square two realities at once: they want innovation, but they do not want to kneecap local lenders in the process.
Section numbers and bill text can sound like bureaucratic wallpaper, but this is the real issue underneath them: if stablecoins start behaving like deposit substitutes, banks will fight back hard. They are not in the business of applauding products that siphon away cheap funding.
State regulators are pushing back too
The backlash is not limited to banks. Seventeen state attorneys general, led by New York Attorney General Letitia James, have challenged provisions they say could weaken state securities enforcement and make crypto fraud cases harder to bring.
That objection is not just turf protection. States have often been the front line in consumer protection and fraud enforcement, especially in markets where scams travel faster than common sense. Crypto has supplied them with more than enough ammunition.
Still, there is a counterargument worth taking seriously. A patchwork of state-by-state enforcement can become a mess, especially for firms trying to operate honestly across multiple jurisdictions. Bad actors thrive in confusion. Legitimate firms end up paying the compliance bill. That is exactly why federal market-structure legislation sounds appealing in theory and turns into a knife fight in practice.
The Fed is already writing stablecoin rules
While Congress argues about market structure, the Federal Reserve is moving ahead with rulemaking under the GENIUS Act, the federal framework for payment stablecoins. In its Sept. 24 announcement, the Fed said its first proposal would require supervised issuers to fully back outstanding stablecoins with permitted assets, including short-term Treasury bills and certain other liquid holdings.
That part is the plumbing, and plumbing matters. A stablecoin is only as credible as the reserves behind it. If those reserves are solid and liquid, redemptions can work. If they are weak or illiquid, “stable” becomes a marketing word rather than a promise.
The Fed’s draft also covers capital requirements, risk management, and firms that safeguard reserve assets. In other words, the central bank is trying to turn stablecoin issuance into something closer to a supervised financial product instead of a glorified balance-sheet experiment with a nicer logo.
The second proposal would establish an application process for supervised banks seeking permission to issue payment stablecoins, with applicants submitting business plans, financial information and other documents. The process would include hearings, appeals and final decisions.
There is also a timing wrinkle. Treasury identified Jan. 18, 2027 as the expected effective date for the law’s main issuer restrictions, though the statute also allows an earlier start 120 days after final implementing rules are issued. So yes, the regulatory clock is already ticking, even if Congress keeps tripping over its own shoelaces.
Crypto compliance is not going away
Fernando Castellanos, global head of digital assets and sponsor banks at Prove, said the CLARITY Act is mainly about market structure and does not replace obligations under the Bank Secrecy Act. In practice, that means covered U.S. crypto businesses still need customer identification, sanctions screening, suspicious activity reporting, beneficial ownership checks and transaction monitoring.
That is the part of crypto regulation some people conveniently forget every time Congress moves a new acronym around. Changing whether an asset is treated one way or another does not make anti-money-laundering rules vanish. The compliance burden may shift, but it does not disappear.
Castellanos also pointed to a very real operational problem: faster settlement and irreversible payments give firms less time to detect fraud or illicit transfers. That is the dark side of speed. Crypto can move money in a hurry. It can also move bad money in a hurry.
That is why sponsor banks spend so much time on customer verification, wallet screening, sanctions controls and transaction monitoring. The technology is new. The risk management is old. Fraud does not care what chain it is on.
Credit unions have their own regulatory headache
America’s Credit Unions raised a separate concern tied to stablecoin reserves and credit union service organization investment limits. The group asked the NCUA to clarify that reserves pledged by owner credit unions should not count against the applicable 1% aggregate investment cap.
That may sound like alphabet-soup trivia, but it is not. Credit unions operate under a different structure from banks, and reserve treatment can create real limits on what they can support. If lawmakers are serious about broadening crypto access, they cannot just write rules for big banks and call it a day.
Key questions and takeaways
-
What would the Senate-reported bill allow banks to do?
CRS says it would make 11 crypto activity categories available to banking organizations and credit unions, including digital asset underwriting and dealing. -
Why are banks fighting stablecoin rewards?
They argue rewards can act like deposit interest and pull money out of the banking system, which could reduce lending to households, farmers and businesses. -
Does the CLARITY framework erase AML rules?
No. According to Fernando Castellanos of Prove, Bank Secrecy Act obligations such as customer checks, sanctions screening and suspicious activity reporting would still apply. -
Why does the Fed’s GENIUS Act rulemaking matter?
The Fed is setting reserve, capital and risk standards for payment stablecoins even while the broader market-structure fight remains stuck in the Senate. -
Are state regulators out of the picture?
Not remotely. Seventeen state attorneys general have already argued the bill could weaken state enforcement against fraud and scams. -
Will banks be able to buy Bitcoin directly?
Sen. Cynthia Lummis says the legislation would allow that, but her claim is a political argument, not a proven market outcome. Any price impact would depend on how much actual bank demand shows up.
The larger picture is pretty clear, even if the politics are not. Washington is inching toward a framework that could let banks and credit unions do more with crypto, while also tightening stablecoin reserve rules and keeping anti-money-laundering obligations firmly in place.
That is the upside for builders who want clearer rules and more institutional participation. The downside is that every new permission comes with a new fight: banks want deposit protection, state AGs want enforcement power, crypto firms want predictable rules, and lawmakers are trying to keep the whole thing from blowing up in their faces.
Good luck with that. But at least the argument is finally about actual policy, not just slogans and moon-boy nonsense.
Further reading
For the regulatory weeds behind the bank-crypto fight, these sources are worth the time.
- CLARITY Act could allow 11 crypto activities for US banks
- Congressional Research Service: Crypto and Bank-Permissible Activities
- Federal Reserve public comment on stablecoin supervision
- New York Attorney General coalition against digital asset preemption
- OCC Notice of Proposed Rulemaking under the GENIUS Act
- Trump’s bold moves: using stablecoins and cheap oil to outmaneuver the Fed
- Fed governor backs bank-issued stablecoins, calls for regulation
- Federal Reserve rates unchanged: Bitcoin and crypto at a crossroads
