Tighter Stablecoin Rules Urged
U.S. Banking Groups Urge Senate to Tighten Stablecoin Reward Restrictions
Anonymous
Key Points
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The proposed deposit-flight circuit breaker would cover an 18-month period after the law takes effect and could be triggered when regulators determine that transfers into payment stablecoins have substantially harmed deposits at community banks with less than $10 billion in assets.
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The American Bankers Association’s chief executive, Rob Nichols, urged bank executives to contact their senators “one more time” before the procedural vote, scheduled for 2:15 p.m. on September 15.
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Current federal law bars stablecoin issuers from paying yield directly, but the banking groups argue that exchanges and other platforms can still structure rewards around customers’ stablecoin holdings, leaving a gap in the restrictions.
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The banking groups said the bill’s drafting creates “loopholes and avenues for the prohibition to be easily evaded,” allowing interest and interest-like payments to continue on stablecoin balances.
Eight U.S. banking trade groups are demanding tighter rules on stablecoin rewards before a Senate procedural vote on the Clarity Act, warning that current language creates loopholes for interest-like payments The Banker. The groups argue that exchanges and other platforms can structure rewards around customer holdings, effectively sidestepping federal prohibitions on stablecoin yield payments The Banker.
Bank executives are conducting a last-minute lobbying push to block or revise the stablecoin provisions, which they say could drain deposits from community banks and reduce lending to households, farmers and small businesses The Banker. The procedural vote was scheduled for 2:15 p.m. on September 15 The Banker.
Banks Fear Stablecoin Rewards Will Drain Deposits
The American Bankers Association and seven other banking groups say the Clarity Act's current language has dangerous gaps The Banker. Federal law already bars stablecoin issuers from paying yield directly, but banks argue intermediaries can still structure rewards based on customer balances, holding periods, or tenure The Banker. This creates what the groups call 'loopholes and avenues for the prohibition to be easily evaded' The Banker.
The groups want lawmakers to remove language allowing rewards to vary by customer factors and broaden the test for identifying incentives that resemble deposit interest The Banker. They warn stablecoin rewards could draw deposits away from banks, particularly hurting community banks with less than $10 billion in assets The Banker.
The Proposed Circuit Breaker Banks Want Removed
The Clarity Act includes a deposit-flight circuit breaker that would activate during an 18-month period after the law takes effect The Banker. Regulators could trigger it if they determine that transfers into payment stablecoins have 'substantially harmed' deposits at community banks The Banker.
Banks oppose this safeguard, arguing regulators should be able to act before substantial outflows have already damaged the banking system The Banker. Treasury Secretary Scott Bessent has defended the proposed circuit breaker, positioning it as a necessary tool to protect the financial system The Banker.
Crypto Industry Remains Unfazed by Legislative Setbacks
While banks lobby hard against stablecoin rules, crypto leaders say the industry will thrive regardless of the Clarity Act's fate U.Today. Ripple CEO Brad Garlinghouse called the Senate's failed vote 'disappointing' but expressed optimism about the future of digital assets in the U.S. Ripple Comments.
Garlinghouse stated that cryptocurrency will 'triumph' whether or not the Clarity Act clears Congress U.Today. Meanwhile, the White House launched an interactive tool to counter banking industry objections, allowing users to model stablecoin impacts on deposits White House Tool.
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