Banks urge Senate to close stablecoin yield loopholes in CLARITY Act

U.S. banking groups have urged the Senate to tighten the CLARITY Act’s stablecoin yield rules, warning that unclear language could encourage payment stablecoins to compete with traditional bank deposits.

Summary

• U.S. banking groups have urged the Senate to tighten the CLARITY Act’s stablecoin yield rules before a floor vote.
• The associations warned that unclear reward provisions could encourage users to move deposits from community banks into payment stablecoins.
• Stablecoin rewards remain one of several unresolved issues as Senate negotiators work to finalise the CLARITY Act.

According to a joint letter sent Monday to Senate Majority Leader John Thune and Minority Leader Charles Schumer, the American Bankers Association (ABA), the Independent Community Bankers of America (ICBA), and 76 state banking associations asked lawmakers to revise Section 404 of the Digital Asset Market Clarity Act before the bill reaches the Senate floor.

The banking groups said the current wording does not provide enough certainty to prevent payment stablecoins from offering incentives that resemble interest on deposits. While Section 404 bars direct or indirect interest or yield on payment stablecoins, it still allows activity-based or transaction-based rewards.

In the letter, the associations said significant questions remain over whether the existing language can fully achieve Congress’s objective. They argued that reward structures tied to holding stablecoins could encourage users to keep balances for longer periods instead of using the tokens only for payments.

Banking groups seek stronger limits on stablecoin incentives

The organisations also warned that community bank deposits support mortgage lending, small business financing, agricultural credit, and other relationship-based banking services. According to the letter, allowing stablecoin issuers to offer yield-like incentives could reduce deposits that local lenders rely on to fund those activities.

The groups urged senators to strengthen the prohibition on interest-like rewards and remove language they believe creates uncertainty around incentives linked to stablecoin balances or the length of time customers hold them. They wrote that removing the provision would support the shared goal of preventing payment stablecoins from being held primarily for yield rather than payments.

The latest request adds another unresolved issue as senators continue negotiating the market structure bill before the chamber’s scheduled August recess. Previous reports have shown that stablecoin rewards remain one of the main disagreements between banking organisations and the crypto industry during negotiations.

Senate negotiations continue as support and amendments grow

At the same time, other organisations have continued pressing lawmakers for changes to different parts of the legislation. As previously reported, the Federal Law Enforcement Officers Association (FLEOA) backed the House version of the CLARITY Act while asking the Senate to revise provisions covering decentralised finance, investigative authority, anti-money laundering rules and sanctions enforcement.

FLEOA also urged lawmakers to prevent companies from avoiding regulation by presenting controlled services as decentralised and asked the Senate to replace the bill’s “specific intent” standard with an existing knowledge standard.

Another unresolved issue is whether the Senate should include ethics restrictions limiting how presidents, vice presidents, members of Congress, and other federal officials can profit from digital assets while in office. Those discussions continue alongside work to reconcile the Banking and Agriculture Committee versions of the legislation before a floor vote.

Separately, White House crypto adviser Patrick Witt, who has coordinated negotiations between the administration, lawmakers, banks, crypto companies and law enforcement groups, is expected to begin military legal training later this month. As previously reported, deputy director Harry Jung is expected to assume Witt’s responsibilities during the leave while Senate negotiations continue.

The CLARITY Act is now on the Senate calendar awaiting floor consideration. If senators approve the measure, the House must also approve the final version before it can be sent to President Donald Trump for signature.