$6 Trillion Deposit Defense! Traditional Finance Banks Reject White House Stablecoin Compromise Plan

The White House held its second meeting on Tuesday, attempting to mediate the disagreement between the banking industry and the crypto sector over stablecoin yield issues. However, traditional finance (TradFi) bank representatives brought a “principles document” insisting on a complete ban. The document calls for prohibiting any financial or non-financial consideration to stablecoin holders, emphasizing that stablecoin activities must not trigger deposit outflows.

TradFi Banks’ Principles Document: Zero Tolerance for Stablecoin Yields

According to informed sources, crypto industry negotiators arrived at the White House on Tuesday prepared to discuss legislative agreements on stablecoin yields. However, their banking counterparts raised further demands in the Senate’s crypto market structure bill, insisting on banning such rewards. The White House had instructed crypto executives and bankers to be prepared to compromise, but TradFi banks remain firm in demanding a ban on stablecoin yields.

A copy obtained by CoinDesk shows that the principles document distributed by TradFi bank negotiators calls for a comprehensive ban on stablecoin yields, recommending prohibiting “any form of financial or non-financial consideration provided to stablecoin payers in exchange for their purchase, use, ownership, possession, safekeeping, holding, or retention of stablecoins.” This language is extremely strict, covering nearly all possible forms of stablecoin yield.

The document further emphasizes that stablecoin activities “must not cause deposit outflows that could harm the lending business of physical banks.” This reveals the core concern of TradFi banks: if stablecoins offer yields higher than bank deposits, large amounts of deposits could flow to crypto platforms, weakening banks’ capital base. Banks’ business model relies on attracting low-cost deposits, issuing high-interest loans, and earning interest rate spreads. A large-scale deposit outflow would force banks to seek wholesale funding, significantly increasing costs and damaging profitability.

The document demands that any requested ban be accompanied by enforcement measures from regulators, and suggests that regulators conduct a study to investigate the impact of stablecoin activities on deposits. This “study first, then decide” approach is essentially a delaying tactic. It would take months or even years to gather data, analyze, and publish a report. Until the study is complete, banks can justifiably oppose any proposals to relax restrictions on stablecoin yields.

Participating TradFi banking groups, including the Bank Policy Institute and the American Bankers Association, issued a statement after the meeting, but did not specify next steps for the legislation. The joint statement said: “As we pointed out during the meeting, the framework can and should embrace financial innovation while maintaining safety and soundness, and should not put at risk the deposits that support local lending and economic activity.”

This wording is diplomatically phrased but lacks concrete commitments. “Embrace innovation without compromising safety” is a generic principle, but it does not specify how to balance the two. “Deposits should not be at risk” is a bottom line for banks, implying that any proposal that could threaten deposits is unacceptable. Compared to the optimistic statements from crypto representatives, the cautious stance of TradFi banks highlights the significant gap between the two sides.

Crypto Sector Optimistic, TradFi Banks Cautious

Sources reveal that the crypto delegation at the meeting included executives from Coinbase, Ripple, a16z, the Crypto Council for Innovation, and the Blockchain Association. The White House attempted to reduce the number of participants from the recent meeting last week, as that meeting made little progress on the key component of crypto platform business models—stablecoin rewards.

Despite the lack of significant progress, crypto representatives expressed optimism in their statements. “Stakeholders continue to actively engage to resolve outstanding issues, which is encouraging,” said Summer Mersinger, CEO of the Blockchain Association. “This important work continues,” said Ji Kim, CEO of CCI, in a post-meeting statement, also expressing appreciation for the ongoing participation of the banking industry.

This optimism contrasts sharply with the actual results of the meeting. Crypto representatives emphasized “active participation” and “continued work,” trying to send a message that negotiations still have hope. However, when TradFi banks presented their principles document insisting on a total ban, this optimism appears somewhat wishful.

From a negotiation strategy perspective, the crypto sector may be intentionally releasing optimistic signals to stabilize market sentiment. If they publicly admit negotiations are deadlocked, it could trigger sell-offs in the crypto market, especially among projects relying on stablecoin yields as a core business model. Conversely, TradFi banks face no such market pressure and can be more candid in their stance.

The debate over whether stablecoins should offer rewards—lobbying battles between Wall Street bankers and crypto insiders—is one of the main obstacles to the Senate Banking Committee advancing the Clarity Act. This issue has persisted for months. According to the principles document circulated by bank negotiators, despite the White House’s insistence last week that both sides propose compromises, TradFi banks remain committed to banning such reward activities.

Democratic Party’s Trump Conflict of Interest Card and CFTC Personnel Demands

However, stablecoin yields are not the only major sticking point. Democratic Senate negotiators have demanded that the agreement include provisions prohibiting senior government officials from deeply engaging in the crypto sector, mainly due to Donald Trump’s personal crypto interests. This “conflict of interest” card is a key bargaining chip for Democrats.

As previously reported, the Trump family has earned over $1 billion in profits over the past year through meme coins, DeFi platforms, and stablecoin businesses. Democrats believe that with the president himself profiting heavily from the crypto industry, any legislation favorable to crypto could be tainted by conflicts of interest. Therefore, they are insisting on adding restrictions to the bill, prohibiting senior officials from operating or profiting from crypto businesses during their tenure.

However, Patrick Wietz, Trump’s crypto advisor, told CoinDesk that the White House would not support any action targeting the president. This firm stance makes it nearly impossible for Democrats’ conflict-of-interest provisions to be accepted unless Republicans make significant concessions on other issues. This deadlock further complicates the bill’s passage.

Democratic lawmakers also insist on strengthening oversight of crypto used for illegal financial activities, demanding that the Commodity Futures Trading Commission (CFTC) ensure all its commissioners—including those appointed by Democrats—are in place before drafting crypto regulations. This requirement has clear political intent: to prevent a more lenient crypto regulatory regime from being established by a Republican-led CFTC before a more balanced commission is in place.

Procedurally, the bill must be approved by a majority in the Senate Banking Committee before moving forward. It has already gained support from the Senate Agriculture Committee, and a similar bill was passed by the House last year. However, the Senate has historically struggled to find enough time to advance legislation, especially with the long recess approaching before the midterm elections, making it even harder to pass a major crypto bill.

Beyond policy disagreements, the Clarity Act faces practical challenges, including ongoing friction over the last budget issue—funding for the Department of Homeland Security. This budget deadlock consumes legislative time and reduces the chances of passing other bills.

After two White House meetings with little change in yield curves, the matter may be left to the legislators drafting the bill. This suggests the White House’s mediation efforts have largely failed, and negotiations will return to Congress, with the Senate Banking Committee seeking a breakthrough.