Summary
- Major US banking groups said the CLARITY Act should be revised because its rules on stablecoin interest (yield) do not do enough to protect bank deposits.
- The banking industry said wider stablecoin adoption could trigger trillions of dollars in deposit outflows from US banks, force regional banks into higher-cost borrowing, and lead to a drop in lending of more than 20%%.
- Although the CLARITY Act has passed the House, its fate in the Senate remains uncertain, raising the prospect of a prolonged debate over stablecoin regulation, the timing of the bill's passage, and the US midterm elections in November.
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US banks and the crypto industry remain at odds over the CLARITY Act, a digital-asset market structure bill under discussion in Congress. Banking groups say the legislation does not do enough to protect deposits.
Cointelegraph reported on May 5 that major US banking associations said the bill should be revised because its provisions on stablecoin interest, or yield, do not adequately safeguard bank deposits.
In a joint statement, groups including the American Bankers Association said the policy goal of prohibiting interest payments on stablecoins is appropriate, but the current language does not achieve that objective. They argued that Section 404 in particular leaves room for crypto platforms to offer returns in ways that are effectively similar to deposits.
Banks are concerned that broader stablecoin adoption could lead to funding outflows from the banking system. Some studies have suggested that trillions of dollars in deposits could leave US banks if stablecoin use expands. Regional banks, in particular, may have to rely on higher-cost borrowing to absorb those outflows.
The groups also cited an analysis by Andrew Niggrinis, a Stanford-trained economist, saying consumer, small-business and agricultural lending could fall by more than 20% if stablecoin yields spur deposit outflows.
The White House Council of Economic Advisers, however, said in an April report that banning stablecoin interest payments would increase bank lending by only $2.1 billion, or about 0.02% of the total, indicating a limited overall impact.
The dispute also highlights differing interpretations of the bill's policy direction. Senator Thom Tillis described the current measure as a compromise that bans interest payments on idle balances while allowing platforms to offer other forms of compensation. He said that framework provides the regulatory clarity needed to pass the bill with bipartisan support.
The CLARITY Act has already passed the House, but its path through the Senate remains uncertain amid conflicting interests over stablecoin regulation. Market participants say the debate could drag on if the chances of passage before the US midterm elections in November continue to diminish.
Minseung Kang
minriver@bloomingbit.ioBlockchain journalist | Writer of Trade Now & Altcoin Now, must-read content for investors.
