Update 866: GENIUS Fails Senate Test

May 12, 2025 | Cryptocurrency, Fiscal Policy, Hearings, Reconciliation, The Fed, Treasury, Update, Weekly Round Up | By

Update 866 – GENIUS Fails Senate Test;
Reconciliation Faces Test next Tuesday

Yesterday, after trying to muscle Democrats into moving forward with the first major piece of crypto legislation this Congress, Senate Majority Leader John Thune faced an embarrassing setback when the GENIUS Act failed to get cloture, falling short by a surprisingly wide margin. The President also announced his first trade “deal” with the U.K., although it encompasses only selected sectors, and a baseline 10 percent tariff will remain in place. 

Otherwise, this week, the Senate Banking Committee voted to confirm deregulation-focused Fed Governor Michelle Bowman, Trump’s nominee to be Fed Vice Chair of Supervision. Additionally, Treasury Secretary Scott Bessent testified before Congress in hearings dominated by tariff concerns, and House Republicans faced additional setbacks in negotiating the details of their reconciliation bill. 

Good weekends all,

Dana

Headline

Thune Makes Not-So-Genius Move on the GENIUS Act

On Thursday, the motion to invoke cloture on the GENIUS Act — the first major piece of crypto legislation that the Senate put forward this Congress — was easily defeated, 48-49, falling far short of the 60 votes necessary to overcome a filibuster. Democrats unexpectedly came out heavily in opposition to the bill as written. The act focuses on providing a framework for stablecoin regulation while also serving as a first step for providing regulations for the larger digital assets market. 

Among other things, the GENIUS Act would provide standards for the issuers of stablecoins, which are digital assets pegged to the value of a fiat currency such as the dollar, to gain certification as a licensed issuer. Issuers with over $10 billion in assets would be regulated by the federal government, while issuers with less than that would be regulated by the states.

This defeat for pro-crypto legislation comes as a surprise reversal of fortune for a bill once expected to breeze through the Senate. The bill made it out of the Senate Banking Committee by a wide margin of 18-6, even as some Democrats, such as Ranking Member Elizabeth Warren (D-MA), fiercely opposed it for taking such a light-touch approach to regulating cryptocurrencies. The emergent crypto industry, which has dramatically increased its lobbying activity following heavy campaign spending last cycle to elect pro-crypto candidates, looked like it would easily have its way with the 119th Congress and secure a clear regulatory framework, providing soft regulation along with a boost to crypto’s legitimacy as a financial asset — a major industry objective.

But a few things went wrong for the GENIUS Act. Senate Majority Leader Thune (R-SD) tried to fast-track the legislation to a floor vote at a time when many Democrats still wanted to iron out their concerns. Those concerns include those raised earlier by Warren and consumer advocates, such as insufficient guardrails against money laundering and the general sense that the bill was overly friendly to the interests of big tech companies that essentially want to serve as banks but with fewer regulations. On top of that, Democrats opposed the Trump family’s increasing involvement in the crypto market and launching their own crypto company, World Liberty Financial, to boost their net worth and open an avenue for those looking to curry favor with the administration to literally pay for influence. On Tuesday, Senator Jeff Merkley (D-OR) introduced the End Crypto Corruption Act to ban the president and other elected federal officials and their families from issuing digital assets in a clear shot at Trump. Even crypto-friendly Democrats, such as Senate Minority Leader Chuck Schumer (D-NY) and Senator Kirsten Gillibrand (D-NY), signed on as co-sponsors of the legislation.

Things took a turn for the worse late last week, when nine Senate Democrats – including four who had voted in favor of the bill in SBC like Mark Warner (D-VA) and Ruben Gallego (D-AZ) – stated in a letter that they still had concerns about the bill and wanted to discuss further changes. Schumer himself stepped in to urge Democrats not to commit to supporting the GENIUS Act in order to force the Senate GOP to negotiate. While last-minute negotiations were in process leading up to the cloture vote, Thune stood firm behind holding the vote on Thursday. Gallego and others voiced their desire to keep negotiating before putting anything up to a vote. In the end, even Senator Gillibrand, one of the bill’s cosponsors, voted against cloture. Combined with Republican Senators Rand Paul (R-KY) and Josh Hawley (R-MO), who opposed the legislation for their own reasons, this was enough to kill cloture on the GENIUS Act. Thune also changed his vote to nay, simply to allow him to enter a motion to reconsider and potentially bring it back to the floor.

Yesterday’s vote marks a major defeat for Thune and the GOP, which had hoped that the GENIUS Act would serve as the tip of the spear for passing multiple pro-crypto bills. Where things go from here is unclear. Pro-crypto Democrats still want to pass legislation, but it is not clear how far apart they still are with Thune and the GOP, since they never even released new text for the bill to lay out some of the supposed compromises they made. While the GENIUS Act is still alive after facing a significant setback, it is clear that Thune’s attempt to muscle through the bill has backfired badly.

Nominations

Bowman Fed Vice Chair of Supervision Nom. Advances

On Tuesday, the Senate Banking Committee advanced the nomination of Federal Reserve Governor Michelle Bowman to be the Fed’s Vice Chair for Supervision, a role in which she would be responsible for overseeing banking regulation and supervision. She was confirmed on a party-line, 13-11 vote. 

Bowman would take a light-touch approach to regulation. As Ranking Member Elizabeth Warren (D-MA) and Committee Democrats made clear, she is the exact wrong person for a position created specifically to prevent another 2008-style financial meltdown. 

Bowman’s record on baking regulation suggests that she is ill-suited to fill the key position at this crucial moment. For example, as Chair of the Fed’s Committee on Consumer and Community Affairs, her tenure included the Evolve-Synapse collapse, where fintech company Synapse Financial Technologies declared bankruptcy after a plethora of issues, issues which resulted in its partner bank, Evolve, refusing to cover the shortfall in end-user funds, which cascaded into over 100,000 Synapse customers seeing their funds frozen. This, in and of itself, does not speak well of Bowman’s abilities as a regulator, made all the worse by her equivocating over questions about how she would handle a scenario where the Trump administration encroached on the Fed’s regulation efforts, as it has done with other independent regulators.

Even before her confirmation, Bowman is pushing for considerably lighter regulations on banks. According to the Wall Street Journal, Bowman plans to review the confidential supervisory rating the Fed gives to banks with over $100 billion in assets, indicating their ability to weather another major financial crisis. Bowman desires to lower these standards. 20/20 Vision urges the Senate to reject her confirmation. 

Other Developments

First Trade “Deal” – or Concepts of a Deal – Announced

On Thursday, the United States and the United Kingdom announced the first trade “deal” in the post-Liberation Day era. The President is framing this announcement as proof that his chaotic and damaging tariff agenda brings trading partners to the table. While not quite the “full and comprehensive” deal touted by the President, the fact sheet posted by the White House outlines the following provisions that we can expect in an eventual deal: 

  • 10 percent tariff – down from 27.5 percent on British vehicles (up to 100,000 per year),
  • 0 percent tariff on steel and aluminum,
  • new access for ethanol (up to 1.4 billion liters) and beef (13,000 metric tons) to U.K. markets,
  • and an unidentified U.K.-based company will purchase $10 billion worth of aircraft from Boeing in return for zero duties on parts from Rolls-Royce imported into the U.S.

However, the 10 percent across-the-board tariff would remain in place, up from the previous 1.3 percent average duty on British goods. The President warned that the British rate is low given our relatively easy trading relationship; this 10 percent remaining duty with a trade-surplus country signals to other countries that this may be the floor for long-term tariff rates. The President posted on Truth Social shortly after the announcement that the 10 percent remaining tariff would “raise $6 BILLION DOLLARS in External Revenue.” 

Changes to the UK’s digital services tax were left out of the deal thus far but may play a role in future negotiations as a hot-button topic between the countries. The U.K. will also likely be keeping a close eye on Trump’s half-proposal of a 100 percent tariff on foreign-made films. It has been over a month since “Liberation Day,” and this is the only “deal” the President has struck amid questions from around the world and within his own party about what can be expected from his trade agenda.

All eyes are on Treasury Secretary Scott Bessent and USTR Jameison Greer this weekend, as they head to Switzerland to meet with Chinese representatives with the hopes to jump start trade talks. In a last-minute announcement, Trump signaled he would consider an 80 percent tariff on China – a significant drop from the standing 145 percent rate, but still quite high.

Reconciliation Stalls in House, Divisions on Cuts Deepen 

House Republicans continued their race to pass a reconciliation bill this week, a bill they are trying to use to enact core pieces of Trump’s policy agenda, including tax cuts paid for by slashing government assistance programs and increased funding for defense and immigration. In what was supposed to be a week jam-packed with contentious markups in the House Agriculture, Energy and Commerce, and Ways and Means Committees, division ran rampant throughout the GOP as vulnerable moderates and fiscal conservatives seemed to be moving further apart on aspects of each set of proposals. Republicans currently plan to mark up proposals in each of these committees next Tuesday, though delays are a definite possibility given the status of negotiations in each committee:

  • Agriculture (instructed to cut $230 billion) – The Agriculture Committee has been exploring cuts to the Supplemental Nutrition Assistance Program (SNAP) to meet its $230 billion instruction. These cuts were a hard sell for GOP moderates to begin with, and now, the Agriculture Committee is trying to shift 25 percent of SNAP costs to states to finance $60 billion in spending on programs usually funded through the farm bill, including funding for crop reference prices and crop insurance. Moderates like Representatives Don Bacon (R-NE) and David Valadeo (R-CA) have sounded the alarm over proposals to cut SNAP, and Representative Derrick Van Orden (R-WI) went as far as to walk out of a GOP briefing last week over the committee’s latest cost-sharing proposal. 
  • Energy and Commerce (instructed to cut $880 billion) – E&C has been tasked with the highest instruction for cuts in this year’s reconciliation effort. Because high-cost programs like Medicare have already been taken off the table, the committee is expected to focus on Medicaid to make up much of their $880 billion cut goal. The committee and Republican leadership have proposed reforms to the Federal Medical Assistance Percentage (FMAP) and instituting per-capita caps, ideas that moderate Republicans have all but ruled out. Various GOP leaders have gone back and forth on whether these reforms are still under consideration, making moderates furious over suggestions that they would consider such proposals, even if only applied to the ACA-expansion population. To make matters worse for Republicans, the CBO published an analysis this week showing that tens of millions of people would be kicked off their health coverage if Republicans pass their proposed reforms, painting a clear picture that the cuts will be to actual benefits as opposed to “waste, fraud, and abuse.” 
  • Ways and Means (instructed to spend $4 to $4.5 trillion) – The Ways and Means Committee has been given $4.5 trillion to spend on tax cuts through reconciliation (decreases to $4 trillion if other committees can’t find $2 trillion in cuts). Despite reports over the past few weeks that the tax portion of the reconciliation bill was all but complete, the Committee’s proposal faced multiple roadblocks this week over the State and Local Tax (SALT) deduction and new demands from the administration. The SALT caucus, made up of moderates from blue (high-tax) states, wants an increase in the $10,000 SALT deduction cap that was enacted through the TCJA, but members are not on the same page about what the new cap should be. Reportedly, the caucus was “offered” a $30,000 SALT cap, but four New York Republicans (Representatives Elise Stefanik (R-NY), Andrew Garbarino (R-NY), Nick LaLota (R-NY), and Mike Lawler (R-NY)) quickly dismissed this proposal, characterizing it as “insulting.” Trump also meddled with the Ways and Means portion of reconciliation this week, reigniting demands for a 39.6 percent top tax bracket for high earners and carried interest reform. He walked back those demands this morning, stating, “Republicans should probably not do it, but I’m OK if they do!!!,” referring to increasing the top marginal rate. In both cases, the path forward seems to be contentious and confusing. 

Negotiations will only get more complicated the longer committees wait, as can be seen in the various new dynamics that worked their way into negotiations this week. None of the stopping points outlined above has a clear path to resolution, and concerns will continue to grow as the pieces from committees are packaged into a larger reconciliation bill.

Markups have been tentatively scheduled for Tuesday, May 13 at 2 pm, though we are very likely to see more delays unless Republicans can pull a joker out of their sleeve to satisfy differing, often conflicting opinions and priorities. 

Hearings

Bessent Testifies Before Congress

Treasury Secretary Scott Bessent testified before Congress this week, appearing before the House Appropriations Committee’s Subcommittee on Financial Services and General Government and the House Financial Services Committee. 

When asked where he sees the United States on trade in a year from now, Bessent said the path forward depended on American trade partners, entirely ignoring the United States’s power and agency in trade negotiations. He claimed that the administration is currently negotiating with 17 of 18 of the nation’s most important trading partners and expects negotiations with 80 to 90 percent of America’s top 15 trading partners to be completed by the end of the year – not quite the “90 deals in 90 days” he promised. He expects a reduction in both tariff and non-tariff barriers. 

Bessent continued to defend the President’s “strategic uncertainty” negotiation strategy, which leaves other countries – along with business owners, investors, consumers, and frankly his own cabinet – completely blindsided by Trump’s trade agenda announcements. However, to small business owners who are making make it or break it decisions for their bottom line, they do not have time to wait out Trump’s strategy. In reality, “strategic uncertainty” is just chaos.

Congresswoman Ayanna Pressley (D-MA) pressed the Secretary on the burden 145 percent tariffs on Chinese imports have on new parents. Using the example of car seats, of which 90 percent come from China, Bessent eventually announced they are considering exemptions on baby products. 

When asked about the rising risk of recession, Bessent responded that the economy has yet to fall into recession but failed to acknowledge that macroeconomic data shows that growth has contracted during the first quarter. Subsequent data could prove equally concerning. 

Representative Al Green (D-TX) noted that in previous testimony before the Senate, Bessent said the Community Development Financial Institutions (CDFI) Fund – which promotes economic revitalization in distressed communities – is very important. As the Trump administration seeks drastic cuts to the fund, Green encouraged Bessent to advise the President against moving forward. Bessent did not commit to doing so. 

House Budget Holds Hearing on U.S. Fiscal Condition

The House Budget Committee met on Wednesday for a hearing titled “The Fiscal State of the Nation.” Led by Budget Chair Jodey Arrington (R-TX), the Republican majority and their witnesses quantified the poor U.S. fiscal condition and trajectory, citing rising interest rate payments that have now surpassed spending on defense and the unsustainable, rising trajectory of the nation’s debt-to-GDP ratio. Republicans largely placed the blame on Democrats and out-of-control spending on programs like Social Security, Medicare, Medicaid, and SNAP, though Chair Arrington did acknowledge that the Republican party has also failed in redirecting the U.S.’s fiscal trajectory by characterizing growth as a silver bullet for addressing increasing deficits and the national debt. 

Democrats and their witness, Michael Linden (Washington Center for Equitable Growth), shared in the concern raised by Republicans over the U.S. fiscal condition, agreeing that a failure to act would lead to dire economic consequences like a debt spiral. However, they placed most of the blame on Republican tax cuts (Bush and Trump), which have eroded the U.S. revenue base over the past 25 or so years. 

Members on both sides of the aisle also used this opportunity to discuss the Republicans’ reconciliation plans, which include spending cuts and trillions of dollars in tax cuts skewed towards the ultra-wealthy. GOP members asserted that the package’s passage is crucial to righting our fiscal trajectory, despite Democratic objections that it would do the opposite by enacting deficit-finance tax cuts and taking away key lifelines for working- and middle-class Americans. 

Democrats also tried to tie fiscal concerns to Trump’s greater economic agenda, which has worked to reverse growth trends and increase prices. Budget Ranking Member Brendan Boyle (D-PA) went as far as to say that he had originally expected Republicans to cancel the hearing because of the fiscal harm caused by Trump in the first 100 days of his presidency. 

Look Ahead

Tuesday, May 13

  • April CPI report

Wednesday, May 14

Thursday, May 15

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