Banks Warn Clarity Act Draft Could Let Stablecoin Yield Evade Ban

Six national and community banking trade groups representing banks in all 50 states sent a letter Friday to the Senate Banking Committee saying proposed Clarity Act language would create loopholes that let crypto firms offer yield-like payments on stablecoins.

The groups objected to compromise text drafted by Senators Thom Tillis and Angela Alsobrooks that bars payments on stablecoins that are “economically or functionally equivalent to the payment of interest or yield on an interest-bearing bank deposit,” while allowing certain rewards tied to governance, validation and staking. The draft also leaves open rewards calculated with reference to a user’s stablecoin balance.

In the letter the coalition wrote: “We are concerned… that the proposed language includes exceptions that will enable evasion of the intended prohibition and incentivize customers to hold and grow stablecoin balances at the expense of deposits.” The groups asked senators to remove any allowance for rewards that reference account balances and to replace the phrase “economically or functionally equivalent” with a ban on payments “substantially similar” to yield.

The trade groups outlined examples they said could fit inside the carve-outs: payments structured like money market mutual funds, a flat monthly reward that rises as balances grow, and rewards tied to account balance but triggered by completing a set number of transactions. The letter said those designs would reproduce the economic effect of earning interest even if labeled differently.

Crypto firms and industry leaders have argued they should be able to offer returns that compete with traditional financial products. Negotiators had signaled a breakthrough last week after Tillis and Alsobrooks disclosed the compromise and industry leaders expressed support for the language.

Tillis and Alsobrooks wrote they “respectfully agree to disagree,” signaling readiness to move forward with a committee vote despite the banks’ objections. Senators on the Banking Committee have said they expect to consider the bill within days; supporters note the Senate will be in session for only two weeks before the November midterm elections.

Republican Senator Bernie Moreno, a pro-crypto committee member, warned that if the bill does not pass this month “digital asset legislation will not pass for the foreseeable future.” That timeline has added pressure on negotiators to resolve the stablecoin yield issue.

Stablecoins are cryptocurrencies pegged to the U.S. dollar. The banking groups said programs that provide yield on those tokens could draw deposits away from insured bank accounts and reduce the attractiveness of low-yield bank savings products. The letter represents a coordinated request from major banking interests to tighten the draft language before the Senate Banking Committee vote.