The Industries Most "Interest-ed" in Congress

 The crypto and banking lobbies have been at odds for months. Last year, the House of Representatives passed the CLARITY Act, which would “clarify” the federal regulatory structure for cryptocurrencies. Among other provisions, the bill would permit crypto exchanges to give holders of stablecoins (i.e., a type of cryptocurrency pegged in value to real currencies) interest to attract customers, threatening the market share of banks that accept and pay interest on deposits. As such, the banking industry opposes any bill that permits exchanges from paying interest on stablecoin, and has mounted a semi-effective campaign to stall CLARITY before it passes in the Senate.

Perhaps the efficacy of these lobbying efforts can be explained from an Olsonian perspective. The young, fragmented crypto industry operates as a privileged group, where several dominant firms (e.g., Coinbase, Binance; the “benefactors” in this case) have vastly outspent other firms on congressional lobbying endeavors. These firms have had a more pronounced role in the legislative process, but are inhibited by the free riding of smaller firms, and will thus achieve T < T*. On the other hand, the banking industry operates as an intermediate group. Although some banks (e.g., JPMorgan-Chase, Bank of America, etc.) have a significant, noticeable impact in DC, community or local banks often have an outsized, also noticeable voice in the legislative process, given their role in representatives’ constituencies. The communication and coordination channels of banks have existed for centuries, and each bank has the incentive to reduce non-bank competitors from entering the market. As such, cohesion can be more easily achieved in the banking industry and the cost of organizing is diminished, despite the massive number of banks in the United States. It appears the banking lobby has emerged victorious on this issue, since interest payments on stablecoin have been restricted in recent Senate versions of CLARITY. Although Olson predicts smaller groups will be more effective in general, this issue reveals that the underlying thread is simply the capacity to coordinate effectively.