Key Insights
- •The Bank Policy Institute published a November 3 risk assessment warning that stablecoins pose threats to retail investors and financial system stability.
- •Alexander Grieve of Paradigm responded on November 4, accusing BPI of bad-faith characterizations and narrow-minded opposition to innovation.
- •The banking industry intensified lobbying efforts after President Trump signed the GENIUS Act into law on July 18, focusing on interest payments and DeFi integration.
Stablecoins Face Banking Industry Opposition After Regulatory Framework
The Bank Policy Institute (BPI) published a risk assessment on November 3, warning that stablecoins pose significant threats to retail investors and financial system stability, despite recent approval of the federal regulatory framework.
Alexander Grieve, vice president of government affairs at Paradigm, fired back on November 4, accusing the banking trade group of making bad-faith characterizations and engaging in antiquated political opposition to crypto innovation.
BPI’s November 3 publication argued that stablecoins presented two major risk categories: depegging events that undermined payment viability and exposure to DeFi lending platforms, which created leverage risks without traditional banking safeguards.
The institute warned that increased stablecoin integration into traditional finance could allow crypto market shocks to affect the non-crypto economy for the first time.
The report detailed historical depegging events, including USDT trading at $0.90 in October 2018 amid Bitfinex withdrawal delays and USDC falling to $0.87 in March 2023, during the collapse of Silicon Valley Bank.
BPI cited the October 10 washout incident, where the algorithmic stablecoin USDe temporarily traded at $0.65 following the escalation of US-China trade tensions, with total crypto liquidations approaching $20 billion.
Regarding DeFi lending risks, BPI examined platforms like Aave, where investors earned approximately 4% on lending stablecoins, while borrowers paid around 6%.
The institute warned that loan-to-value ratios exceeding 90% enabled 10 times leverage on crypto purchases, creating conditions for liquidation cascades during market downturns.
BPI emphasized that DeFi platforms lacked deposit insurance, lender-of-last-resort access, capital requirements, and regular examinations, which traditional banks faced.
Paradigm Executive Challenges Banking Industry Claims
Alexander Grieve responded sharply on November 4, stating the BPI characterizations represented bad faith and narrow thinking.
He accused the institute of adopting an “if you can’t beat them, destroy them” approach toward stablecoins and suggested former SEC Chair Gary Gensler’s colleagues had taken up residency at BPI or influenced its policymaking.
Grieve compared stablecoins to transformative inventions that evolved beyond their original purposes.
He mentioned Velcro designed for astronaut suits in the 1960s, zippers invented as industrial closures in the 1910s, bubble wrap originally conceived as wallpaper, and ETFs created for institutional portfolio hedging that became the most popular global product for passive money management.
He characterized stablecoins as “room temperature superconductors for global money movement” when supercharged by the GENIUS Act.
Grieve suggested BPI should consult member banks working with stablecoins or considering issuance, claiming they would tell different stories than the trade group’s public positions.
Banking Groups Escalated Pushback After GENIUS Act Passage
The banking industry’s coordinated opposition intensified after President Donald Trump signed the GENIUS Act stablecoin regulatory framework into law on July 18.
In mid-July, the American Bankers Association backed the law’s broad aims but warned Congress that any framework must address financial stability and consumer protection risks.
Weeks later, ABA and state associations urged Congress to “close gaps” in the GENIUS Act by entirely barring non-financial companies from issuing payment stablecoins and eliminating approval paths.
The pressure coincided with reports that bank lobbies sought to shut an “interest” loophole they claimed could drain deposits into exchange-offered stablecoin yields.
BPI followed with a focused campaign targeting interest-style rewards and DeFi spillovers.
On August 12, the institute called on Congress to “close the payment of interest loophole for stablecoins,” and then published risk notes arguing that stablecoins faced depegging risks and that DeFi lending resembled highly levered banking without capital, liquidity, or backstops.
Industry Comments Target AML Controls and Regulatory Parity
Banks leveraged Treasury’s August request for ideas to police digital-asset illicit finance.
ABA and jointly BPI with The Clearing House filed comments urging “same activity, same risk, same rules” standards, clearer know-your-customer and anti-money-laundering lines of responsibility, and guardrails preventing regulatory arbitrage as DeFi and stablecoin use expanded.
Community banks echoed the stance, telling the Treasury that most institutions didn’t offer crypto products and flagged crime-prevention concerns.
In early November, BPI stated that even after the passage of the GENIUS Act, criminals retained pathways via cryptocurrency and pressed for tighter AML controls. Yet, the GENIUS Act is not in full effect.
Since July 2025, major banking groups’ pushback centered on three planks: blocking non-bank stablecoin issuers, banning or neutering any “interest” on stablecoins, and tightening AML/KYC expectations for DeFi and stablecoin activity.
The coordinated campaign suggested that traditional financial institutions viewed stablecoins as a competitive threat to their deposit-gathering and payment-processing business lines.
Grieve’s response highlighted tension between legacy financial institutions seeking to limit stablecoin growth and crypto advocates arguing the technology represented legitimate financial innovation.
He questioned whether platforming what he called “radioactive political operatives” would serve the long-term viability and influence of banking trade groups.
The debate stressed broader questions about how digital asset infrastructure would integrate with traditional finance and whether regulatory frameworks would enable or constrain innovation in payment systems and decentralized lending markets.