Eight US banking trade groups have called on Senate leaders to impose tighter restrictions on stablecoin rewards in the latest version of the Clarity Act, raising concerns that certain exceptions in the bill could allow for interest-like payments, potentially drawing customer deposits away from banks.
Industry calls for overhaul of reward provisions
In a letter sent Monday to Senate leaders John Thune and Chuck Schumer, the banking associations argued that the Clarity Act’s wording would leave loopholes permitting rewards linked to stablecoin holdings or the time funds are kept, in a manner similar to traditional deposit interest.
Among the signatories were major sector groups including the American Bankers Association, Bank Policy Institute, and Independent Community Bankers of America, representing both large banks and smaller community lenders. The appeal comes just ahead of a Senate procedural vote on the revised Clarity Act.
The letter advocates for several changes, such as eliminating the term “solely” from rules on payments tied to holding stablecoins. The groups also recommend replacing an equivalence test with one based on whether payments are “substantially similar” to deposit interest, aiming to close any gaps that could allow alternative incentive structures.
Signatory groups support a clear distinction between payments for stablecoin transactions and rewards based on account activity, but they claim the current language could be easily bypassed, potentially enabling interest-like payouts that mimic traditional banking products.
One of the industry’s key requests is to remove a provision that would allow permissible rewards to fluctuate depending on a user’s balance, account duration, or tenure. The bankers pointed out that such criteria often determine traditional interest rates and warned this could contradict the bill’s intended prohibitions.
Concerns over impact on lending and deposit safety
Banking representatives argue that enabling such incentives for stablecoin holders could divert critical funds from conventional financial institutions, reducing their ability to extend loans to homeowners, farmers, and small businesses. The letter said community and mission-driven banks could be especially vulnerable but did not offer figures estimating potential outflows or evidence of actual lending impacts so far.
A proposed deposit-flight “circuit breaker,” designed to let regulators intervene if deposit outflows accelerate, was also criticized. The groups described it as reactive rather than preventative, noting it would only trigger after banks already suffered substantial withdrawals.
A circuit breaker that only activates after significant deposit flight fails to provide real protection, the groups asserted, urging Congress to outlaw stablecoin incentives that function like deposit interest before banking system harm occurs.
The letter renewed calls initially raised in May by banking associations, notably to restrict rewards tied to account balances and iterate the need for the “substantially similar” standard for recognizing prohibited incentives.
Policy dispute intensifies between banks and crypto firms
As the Senate debate intensifies, discussions about the bill have spread beyond Washington, with community bankers in several states demanding stricter limits, while crypto industry supporters advocate keeping reward programs and implementing clear regulatory guidelines.
The contest over stablecoin incentives highlights growing tensions between traditional financial institutions and the digital asset sector regarding the role of deposit-like products and the risks of unregulated competition in the lending market.
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