TD Cowen: Banks disadvantaged in stablecoin yield fight... Prolonged dispute could imperil the Clarity Act

U.S. investment bank TD Cowen said banks could be politically disadvantaged in the dispute between the banking sector and the crypto industry over paying yields on stablecoins. It added that if the conflict becomes protracted, it could weigh on the passage of a U.S. crypto market structure bill.

According to a July 3 report by The Block, Jaret Seiberg, managing director at TD Cowen’s Washington Research Group, wrote in a note that “banks are opposed to paying consumers, which makes it likely they ultimately lose politically,” while warning that “if this fight drags on, it could become a risk for the Clarity Act.”

The analysis follows the Office of the Comptroller of the Currency (OCC) releasing a proposed rule to implement the GENIUS Act, the stablecoin legislation enacted last year. The GENIUS Act prohibits issuers from paying interest or returns directly to holders of payment stablecoins.

The OCC proposal says that if an issuer works with an affiliate or related entity to provide returns to holders via a third-party platform, it would be presumed unlawful. It added that specific cases will be assessed individually, and it will collect public comments for 60 days after publication in the Federal Register.

Seiberg said it would be difficult to satisfy banks unless the OCC’s approach explicitly bans yield payments by platforms. He cited as key variables: ▲the possibility the OCC changes its stance after the public comment period ▲the possibility issuers and platforms restructure contracts to avoid the “presumed unlawful” standard ▲the possibility platforms sue after the rule is finalized and prevail.

He also pointed to the fact that after the repeal of the Chevron doctrine, regulators are less likely to be granted broad discretion in statutory interpretation. Because Congress did not explicitly prohibit platforms from paying interest or issuers from paying marketing fees, he said there remains room for legal challenges.

Stablecoin yields and conflict-of-interest provisions are seen as key issues in the crypto market structure legislation currently under discussion. JPMorgan CEO Jamie Dimon has called for a “level playing field” between banks and crypto firms, arguing that if compensation effectively functions as interest, the same regulations should apply.

TD Cowen did not rule out the possibility of a compromise between banks and the crypto industry, but said the timing of any negotiations remains uncertain. Separately, JPMorgan analysts said the market structure bill could pass by mid-year, potentially serving as a positive catalyst for markets in the second half.