US banking groups urge Senate to strengthen stablecoin provisions in Clarity Act

Quick Take

• The American Bankers Association (ABA), the Independent Community Bankers of America (ICBA), and 76 state banking associations have called on Senate leaders to make further changes to the Clarity Act.
• They warned that current provisions in the bill could enable stablecoin arrangements to function as substitutes for deposits, increasing the risk of deposit flight from community banks.

The American Bankers Association (ABA), the Independent Community Bankers of America (ICBA), and 76 state banking associations have called on Senate leaders to make targeted changes to stablecoin yield provisions in the Clarity Act.

In a joint letter sent to Senate Majority Leader John Thune and Minority Leader Charles Schumer on Monday, the groups stressed the need for clearer guardrails around payment stablecoins.

In particular, they argued that ambiguities in Section 404 could enable stablecoin arrangements to function as substitutes for deposits, potentially leading to deposit flight from community banks.

Section 404 includes language banning crypto firms from paying direct or indirect interest or yield on payment stablecoins. However, it permits activity-based or transaction-based rewards.

Section 404

“Significant questions remain regarding whether the current language in Section 404 provides sufficient clarity and certainty to achieve that objective,” the associations wrote.

They expressed concerns that the current provisions might not sufficiently deter interest- or yield-like incentives that encourage customers to hold stablecoins for extended periods rather than use them purely for transactions.

The associations further highlighted that community bank deposits play a key role in supporting mortgage lending, small-business financing, agricultural credit, and other relationship-based banking services that drive local economies.

“Ensuring that stablecoin regulations draw clear and enforceable boundaries around interest- and yield-like incentives is therefore essential to preserving the flow of credit that local communities depend upon,” the associations said.

The groups urged strengthening the ban on such incentives and eliminating language that could create ambiguity around rewards tied to stablecoin balances or tenure.

Removing this provision aligns with our shared objective to not incentivize the idle holding of payment stablecoins for extended periods of time, the associations wrote.

Banks versus crypto

The letter reaffirms the banking sectors long-standing opposition to certain provisions in the Clarity Act. The stance comes amid a broader dispute between banking and crypto groups over stablecoin rewards and yield, a key point of contention in negotiations over the bill.

In related developments, the Federal Law Enforcement Officers Association (FLEOA) expressed support for the House version of the Clarity Act and recommended refinements to preserve federal law enforcement authorities in areas such as anti-money laundering, sanctions enforcement, and investigations into decentralized systems.

Another pending issue in the Clarity Act is whether to include ethics restrictions limiting how presidents, vice presidents, members of Congress, and other federal officials can profit from digital assets while in office.

The legislation is now on the Senate calendar awaiting a floor vote. Should the Senate pass the bill, the House would still need to sign off before sending it to the President.