Banking Trade Groups Urge Tighter Stablecoin Reward Limits in Revised Clarity Act Proposal
Table of Contents
You might want to know
Could exceptions in the Clarity Act enable stablecoin rewards that function like bank deposit interest?
How might such rewards affect community lenders and the broader flow of credit?
Main Topic
Eight banking trade associations have formally requested that Senate leadership tighten the language of the Clarity Act with respect to rewards linked to stablecoin transactions. In a letter addressed to Senators John Thune and Chuck Schumer, the groups argued that recent revisions to the bill leave loopholes that could permit payments resembling interest on stablecoin balances—mechanisms that, in their view, could divert deposits away from traditional banks.
The signatories represent a broad cross-section of the banking industry, including large national institutions and community lenders. They contend the current draft’s exceptions and wording could be used to structure stablecoin-based incentives that replicate the economics and incentive effects of deposit interest. Specifically, the groups urged the removal of the word "solely" from a restriction on payments tied to holding stablecoins, arguing that its presence narrows the prohibition and leaves room for evasion.
In addition, the trade groups proposed replacing an equivalence test in the bill with a broader "substantially similar" standard. Their argument is that a substantially similar test would better capture a wider array of incentives that, while not identical to deposit interest, function in equivalent ways to attract customer funds.
Another focus of the letter is a request to remove language that would allow otherwise permissible rewards to be conditioned on a customer's balance, the duration of holdings, or tenure. The associations observed that interest and interest-like payments are often computed with reference to those very factors; allowing rewards tied to balance or duration could therefore undermine the initial prohibition on interest-like stablecoin payments.
Banking groups warn that if stablecoin rewards can be structured to mimic interest, those programs could draw deposits out of banks and into crypto platforms. They emphasize that deposits are a key funding source for traditional lending activities—mortgages, agricultural credit, and loans to small businesses—and that diverting these funds could weaken the ability of banks, particularly smaller community and mission-driven lenders, to support local borrowers.
While the letter expresses concern about potential outflows and their impact on lending, it does not provide quantitative estimates of likely deposit migration or empirical evidence that lending has already declined as a result of stablecoin rewards. Instead, the groups stress the risk and urge preventative legislative clarity to avoid harm to banks, borrowers and communities.
The associations also criticized a proposed deposit-flight "circuit breaker" mechanism included in the draft. Under that provision, regulators would gain authority to act after substantial deposit outflows occur. The trade groups characterized this approach as reactive rather than protective, arguing that a circuit breaker that only triggers after significant deposits have already left the banking system does not effectively safeguard depositors or lenders. They called for an upfront prohibition on payment stablecoin rewards and incentives that operate like deposit interest rather than relying on post hoc regulatory remedies.
Their demands echo earlier requests made in May by six banking groups, and the issue has become politically salient as the Senate prepares for a procedural vote on a revised Clarity Act. The debate has spilled over into senators' home states: community bankers and local stakeholders have lobbied for stricter limits, while crypto proponents and industry participants have advocated for preserving stablecoin reward options and establishing clear federal rules to foster innovation.
Proponents of keeping stablecoin rewards available argue that clear federal regulation will support innovation, competition, and consumer choice in digital assets. They caution that overly broad restrictions could stifle legitimate product offerings and limit the ability of firms to compete on returns or services. The banking trade groups, by contrast, prioritize the protection of deposit-funded lending and systemic stability.
As the Senate considers the revised Clarity Act, the conflict highlights a broader policy tension: how to balance the benefits of digital asset innovation against potential risks to the traditional banking system and the lending that supports communities. Lawmakers will need to weigh the trade-offs between permitting flexible, market-driven stablecoin products and enacting safeguards intended to prevent deposit outflows and preserve banks' capacity to finance the economy.
Key Insights Table
| Aspect | Description |
|---|---|
| Key Fact 1 | Eight banking trade groups asked Senate leaders to tighten restrictions on stablecoin rewards to prevent interest-like payments. |
| Key Fact 2 | Groups want removal of "solely," adoption of a "substantially similar" test, and deletion of balance/duration/tenure-based reward allowances. |
Afterwards...
Moving forward, policymakers and industry participants should focus on refining clear, forward-looking regulatory standards that address both innovation and systemic risk. Exploring frameworks that precisely define what constitutes "interest-like" compensation for digital-asset holdings would reduce legal ambiguity and help align industry practices with financial stability goals.
Key areas for further study and technological development include stronger transparency and reporting standards for stablecoin programs, improved stress-testing models for deposit migration risk, and interoperable compliance tools that enable crypto platforms to demonstrate adherence to regulatory constraints. Greater empirical research on how stablecoin rewards influence depositor behavior and lending outcomes would also inform proportionate policymaking.
Finally, collaboration between regulators, banks, crypto firms, and community stakeholders can produce balanced solutions that foster responsible innovation while protecting the financial system. Emphasizing clear definitions, early safeguards, and targeted monitoring could help reduce the likelihood that stablecoin incentives undermine traditional credit intermediation, while still permitting beneficial digital-asset services to develop. Continued dialogue and measured policy design will be essential as Congress considers the Clarity Act and its implications for both banking and crypto ecosystems.