Banks: Clarity Act stablecoin language falls short

Five U.S. banking trade groups criticized language in the Clarity Act they say would leave bank deposits exposed by allowing stablecoin rewards that resemble interest. The groups are the American Bankers Association, the Bank Policy Institute, the Consumer Bankers Association, the Financial Services Forum and the Independent Community Bankers of America.

Senators Thom Tillis and Angela Alsobrooks released the bipartisan compromise after months of negotiations with banks, the White House and crypto firms. The provision bars deposit-style yield but allows certain rewards tied to actual on-platform activity, a feature the banks say creates a loophole.

The trade groups flagged Section 404, which permits payouts through membership or loyalty programs provided the payments are not labeled as bank interest. They also objected to reward structures based on how long users hold stablecoins, the account balance or a user’s tenure on a platform, arguing those features effectively reward idle holdings.

A joint statement from the five groups acknowledged the senators’ intent to limit deposit flight but called the draft insufficient. “Senators Tillis and Alsobrooks are seeking to achieve the correct policy goal – prohibiting the payment of yield and interest on stablecoins; however, the proposed language falls short of that goal. It is imperative that Congress get this right,” the statement read. The groups said they will provide detailed suggested edits to preserve community lending while accommodating innovation.

On X, Tillis defended the compromise and noted industry representatives participated in the talks. He wrote that the agreement “prohibits stablecoin rewards from resembling interest on bank deposits, our core concern over deposit flight,” and warned against letting “the perfect become the enemy of the good.”

Regulators and lawmakers have highlighted a risk that if stablecoins offer interest-like returns, consumers and businesses could move cash to crypto platforms, reducing funds that local banks use for mortgages and small-business loans. The Clarity Act’s authors aimed to allow platform innovation while preventing stablecoins from functioning like uninsured deposit accounts.

The disagreement comes ahead of a planned Senate Banking Committee markup later this month. How lawmakers respond to the banking groups’ suggested edits will affect whether exchanges can continue membership-based rewards and how platforms design incentives for stablecoin holders.