Banking Industry Says Clarity Act Stablecoin Proposal Would Enable 'Evasion

In a surprise move, the nation's leading banking associations have voiced strong objections to the revised language in the Clarity Act, a landmark cryptocurrency bill, citing significant loopholes that could undermine traditional banking. The proposed legislation, which aims to legitimize most cryptocurrency activities in the United States, has been stalled in the Senate for months due to intense lobbying by both the banking and crypto industries.

At the heart of the dispute is the issue of stablecoin yield, with banks pushing for a complete ban on crypto companies offering interest or rewards on these dollar-pegged digital assets. They argue that such programs would erode the appeal of traditional savings accounts, which typically offer low yields. Crypto companies, such as Coinbase, counter that they should be allowed to compete with traditional financial institutions.

After months of negotiations, Senators Thom Tillis and Angela Alsobrooks recently unveiled a compromise that would prohibit rewards on stablecoins that mimic interest-bearing bank deposits. However, the proposed language also contains exceptions that would permit rewards tied to account balances, governance, validation, and staking. The banking associations, representing all major national and community banks, are now calling for further revisions to close these perceived loopholes.

In a letter to the Senate Banking Committee, the six banking trade groups expressed concerns that the current draft would enable crypto companies to circumvent the intended restrictions, ultimately enticing customers to shift their funds from traditional deposits to stablecoins. The groups are seeking specific changes to the language, including the removal of references to account balances and a stricter prohibition on payments that resemble yield.

The banking associations have provided examples of potential stablecoin rewards programs that could exploit the loopholes, including payments structured like money market mutual funds and rewards triggered by transaction activity. The senators behind the compromise, Tillis and Alsobrooks, have not yet responded to these concerns, with Tillis previously indicating that they are willing to proceed with a committee vote despite the banking industry's reservations.

With time running out, the Clarity Act's fate hangs in the balance. The Senate is scheduled to adjourn soon, and proponents of the bill, including Senator Bernie Moreno, have warned that if it does not pass this month, digital asset legislation may be delayed indefinitely. The Senate Banking Committee is expected to consider the bill next week, but the banking associations' objections may yet throw a wrench into the proceedings.