The crypto industry’s chief effort in U.S. policy — the Digital Asset Market Clarity Act — has remained held up on a point about stablecoin yield that has little to do with the bill’s central aim to regulate U.S. crypto markets. It’s still a sticking point as bankers fired the latest volley to claim the industry’s reward programs are a danger to bank deposits.
In response to a recent White House economists report that the banks have little to fear from the rise of stablecoins, the American Bankers Association contends that the Council of Economic Advisers was analyzing the wrong scenario. Instead of looking at what would happen if Congress were to institute a ban on stablecoin yield now, it should have looked at what would happen if such returns from stablecoins were allowed.
“The CEA paper minimizes the core risk by starting from the wrong question,” according to ABA economists. “There is already ample evidence and analysis showing that a prohibition on yield for payment stablecoins is a prudent safeguard. Such a policy will allow stablecoins to mature as a payments innovation rather than as an economically risky substitute for insured bank deposits.”
This conflict over a topic already partially dealt with in last year’s Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act effectively derailed the Senate legislation for months. Though the Clarity Act’s lawmaker advocates have predicted it could get its necessary hearing in the Senate Banking Committee before the end of this month, that session hasn’t yet been scheduled.
Senators from both parties had been moved by the bankers’ arguments that their depositors (who fund their lending) would leave them in droves to chase stablecoin yield that outpaces what the banks offer in interest. So the lawmakers hashed out a compromise that would ban yield on stablecoin holdings that look like deposit accounts and only allow rewards programs for activity, akin to credit-card rewards. But the banks haven’t come out cheering it.
Senator Cynthia Lummis, the Wyoming Republican who chairs the Banking Committee’s digital assets subcommittee, posted Monday on social media site X, “America needs Clarity.” She’s kept a steady stream of posts going on the topic, saying over the weekend that it’s “now or never” for the bill.
The longer this debate stretches out, the more difficult it’ll be to get Clarity through the Senate process that can lead to a floor vote. While crypto insiders have been relatively vocal about the clash, bank representatives have been more reserved.
The bankers’ latest arguments suggest that the absence of intervention on stablecoin yield now would let stablecoin markets scale rapidly from $300 million to as much as $2 trillion.
“In a larger market, yield is not a minor product feature; it is the mechanism that would accelerate migration out of bank deposits,” they contend.
And though leading stablecoin issuers would deposit reserves in banks, they’re likely to go to larger institutions and not community banks, according to the ABA’s thinking.
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