Banks warn CLARITY Act stablecoin wording risks deposits

Major U.S. banking trade groups said Monday that the CLARITY Act’s proposed language on stablecoin yield does not adequately prevent crypto firms from offering bank‑like interest and could put bank deposits at risk. The American Bankers Association issued the statement alongside the Bank Policy Institute, Consumer Bankers Association, Financial Services Forum and Independent Community Bankers of America.

The groups focused on Section 404 of the bill, titled “Prohibiting interest and yield on payment stablecoins,” saying the current draft leaves a loophole that could allow crypto platforms to pay rewards or yield that resemble bank interest without following bank rules and protections. The bankers added that “it is imperative that Congress get this right” and called the gap “a significant loophole that must be addressed.” They said they will send lawmakers detailed suggestions to strengthen the language.

The CLARITY Act is a bipartisan bill to create a federal framework for payment stablecoins and to assign regulatory roles to banking and securities authorities. The measure passed the House in July by a 294‑134 vote. Sponsors released the latest Senate draft last Friday.

Senators Thom Tillis and Angela Alsobrooks drafted Section 404 to ban yield on payment stablecoins. The senators aim to bar interest on idle stablecoin balances while allowing crypto firms to offer other types of customer rewards. Tillis defended the text as a compromise intended to advance the bill and provide regulatory certainty for stablecoin services.

Banking groups have warned for months that widespread use of yield‑bearing stablecoins could cause large deposit outflows from U.S. banks, particularly small community institutions with limited balance‑sheet flexibility. The groups cited an analysis by economist Andrew Nigrinis that found stablecoin yields could reduce consumer, small‑business and farm lending by one‑fifth or more if deposits migrate away from banks.

The bankers’ position contrasts with an April analysis by White House economists, which estimated that banning stablecoin yield would raise bank lending by about $2.1 billion, roughly a 0.02% net increase. The differing estimates highlight a dispute over how much and how quickly deposits might move into crypto platforms.

Crypto industry groups and major exchanges are pressing for a CLARITY Act markup as soon as next week to move the measure forward and provide clarity to stablecoin issuers and related service providers. Bank trade groups warned that unresolved language could slow the bill in the Senate and said some observers are concerned it may not clear Congress before the November 2026 midterm elections.

Regulators and lawmakers have focused on how to regulate stablecoin issuers, protect consumers and limit risks to the broader financial system if deposits shift into payment platforms not subject to traditional bank oversight. Both industry supporters and banking groups said they plan to press lawmakers on revisions to Section 404 as the Senate considers the draft.