Kraken 's approval to access the Federal Reserve's core payment system has sparked a strong backlash from the banking industry.
In a statement on Wednesday, the Independent Community Bankers Association (ICBA) and the Banking Policy Institute (BPI) voiced their opposition to the Fed's decision, arguing that it could threaten the stability of the financial system.
The bank questioned Kraken federal approval.
Just hours after news broke that Kraken had become the first crypto company to obtain a principal account at the Fed , the ICBA immediately issued a strong reaction.
“Allowing non-bank institutions and crypto organizations access to the Capital account, which is reserved for highly regulated banks and guarantees traditional deposits, puts the banking system at risk,” said ICBA CEO Rebeca Romero, adding: “The Fed should continue to limit access to the main account to institutions that meet the highest standards in the financial services sector.”
Meanwhile, BPI is concerned about the Fed's decision-making process.
"This action disregards the public input that the Fed sought regarding this regulatory framework, and lacks transparency regarding the approval process or the risk controls put in place to address the serious risks it poses."
These organizations also emphasized that Kraken now has direct access to the same payment system as thousands of banks and credit unions in the US. This allows Kraken to conduct USD transactions directly through the Fed without going through intermediary banks.
Kraken doesn't enjoy the same benefits as traditional banks at the Fed, such as earning interest on its reserves. Nevertheless, this decision is still a significant step forward for the crypto industry .
The tension between banks and the crypto industry extends beyond the approval of Kraken, highlighting the ongoing debate over the growing Vai of crypto in traditional finance.
The battle over stablecoin interest rates is far from over.
Prior to the GENIUS Act's passage in July 2023, banks had been strongly advocating for loose regulation of stablecoins. They argued that the bill could threaten the deposit base of traditional banks .
This concern is well-founded. In April 2023, a US Treasury report estimated that stablecoins could cause banks to lose up to $6.6 trillion in deposits .
A month after the GENIUS Act was passed, five banking associations – including ICBA and BPI – sent a letter to Congress, urging them to close the legal loophole that allows stablecoin issuers to pay interest through exchanges.
They warned that this loophole could drive up borrowing costs and interest rates for businesses and households, leading to less credit available to both groups.
“Without clear regulations prohibiting exchanges, which act as distribution channels for stablecoin issuers or their affiliates, the requirements of the GENIUS Act can easily be circumvented, undermining the law by indirectly paying interest to stablecoin holders,” the letter stated.
These controversies continue to surface in discussions surrounding the CLARITY Act . The core issue is whether crypto exchange have the right to pay interest or a yield similar to interest rates on stablecoins.
Unfortunately for the banking industry, US President Donald Trump has recently sided with the crypto industry.
Trump criticized banks for delaying the CLARITY Act.
On Tuesday evening, the President accused American banks of obstructing the progress of the GENIUS Act and stalling the progress of the CLARITY Act.
“The American people deserve better returns on their money. Banks are making record profits, and we’re not going to let them undermine America’s strong crypto strategy, which would fall into the hands of China and others if the CLARITY Act doesn’t pass,” Trump wrote on Truth Social.
This is the most decisive intervention by the President in the debate over stablecoin rights.
The Trump family is also involved in numerous crypto activities , and he is currently urging Congress to pass legislation on market structure before the midterm elections in November 2024. The outcome of these elections could alter the current balance of power held by the Republican Party in both the House and the Senate.
Trump's post came just hours after a report from POLITICO confirmed the President had a private meeting with Coinbase CEO Brian Armstrong at the White House.
