U.S. banking groups have pushed back against the latest CLARITY Act language on stablecoin rewards, arguing it does not sufficiently prevent risks to bank deposits.
Summary
- U.S. banking groups have said the CLARITY Act’s updated language still allows stablecoin rewards that could pull deposits from traditional banks.
- Trade associations warned that incentives tied to balances or holding periods may replicate deposit-like returns despite the proposed ban on yield.
- Lawmakers including Senators Thom Tillis and Angela Alsobrooks have defended the compromise as a path forward, even as disagreements with banks continue.
According to a joint statement from the American Bankers Association, Bank Policy Institute, Consumer Bankers Association, Financial Services Forum, and Independent Community Bankers of America, the revised provisions tied to stablecoin yield “fall short” of preventing deposit flight despite efforts by lawmakers to address the issue.
The groups said Senators Thom Tillis and Angela Alsobrooks are “seeking to achieve the correct policy goal,” though the current draft does not fully close gaps tied to reward structures.
Banks warn of deposit outflows despite yield restrictions
Concerns raised by the banking coalitions focus on how the proposal restricts interest-like payments on idle stablecoin balances while still allowing transaction-based incentives. The groups said such incentives, if linked to balance size, duration, or tenure, could replicate deposit-like returns and draw funds away from traditional banks.
In their statement, they argued that “overtly incentivizing the idle holding of payment stablecoins” could undermine the intended prohibition by tying rewards to how long and how much users hold.
Citing prior research, the banking groups said large-scale stablecoin adoption could trigger trillions in outflows from the U.S. banking system, with community banks facing the most strain due to limited balance-sheet flexibility.
They referenced analysis by economist Andrew Nigrinis, who warned that such outflows “could reduce all consumer, small-business, and farm loans by one-fifth or more,” linking deposit losses directly to lending capacity.
At the same time, estimates from White House economists published in April presented a more limited impact. That analysis found that banning stablecoin yield could raise bank lending by about $2.1 billion, equivalent to roughly 0.02%, indicating only a marginal effect on credit expansion.
Lawmakers have framed the current language as a negotiated middle ground after months of discussions involving regulators, banks, and crypto firms. The revised text blocks payments that resemble interest on deposits while permitting rewards tied to genuine activity, a distinction that has remained a key point of disagreement.
In comments shared publicly, Tillis said the compromise was designed to prevent stablecoin rewards from functioning like deposit interest while still allowing platforms to offer alternative incentives. He added that the approach supports a bipartisan path forward for passing the CLARITY Act and providing regulatory clarity for digital assets, while acknowledging continued opposition from parts of the banking sector.
The dispute over stablecoin rewards has slowed progress on the broader market structure bill, which passed the House with a 294–134 vote but still faces hurdles in the Senate. Lawmakers have also had to contend with scheduling constraints, debates over crypto-related conflicts of interest, and concerns tied to illicit finance.
Banking groups said they plan to submit detailed recommendations to lawmakers in the coming days, maintaining that clearer restrictions are necessary to protect deposit-based lending systems, particularly for local and community institutions.
Meanwhile, support from crypto firms has begun to stabilize following earlier setbacks, including a canceled Senate Banking Committee hearing after opposition from Coinbase, which has since backed the latest draft.
