US Banking Groups Oppose Clarity Act Draft, Call Stablecoin Yield Exception a Loophole

Major Wall Street and regional banking trade groups have formally opposed the latest draft of the Clarity Act, arguing that an exception allowing interest-like payments on stablecoins could undermine the traditional banking industry.

The Block reported on May 8 that six major banking trade associations representing lenders across the US sent a letter to the Senate Banking Committee urging changes to an exception in the newly released compromise draft, saying it is overly broad.

US banks and the crypto industry have spent months fighting over one of the bill's central issues: whether stablecoin issuers should be allowed to pay interest. Banking groups have pushed for an outright ban, arguing that yield paid by crypto firms would make traditional bank deposits less attractive. Crypto companies including Coinbase have argued that such payments should be allowed to ensure fair competition with traditional finance.

Senator Thom Tillis, a Republican, and Senator Angela Alsobrooks, a Democrat, both members of the Senate Banking Committee, proposed a compromise draft last week. The measure would ban compensation that is economically or functionally equivalent to interest on bank deposits, while allowing rewards tied to governance participation, validation or staking, as well as compensation calculated in proportion to account balances.

Banking groups said the compromise would open a loophole for crypto firms to evade the ban. In their letter, the groups wrote that the proposed exception "would create a strong incentive for customers to increase stablecoin balances instead of bank deposits."

They also called for tougher language in the bill. The groups said any reference to account balances in calculating compensation should be removed entirely, and that the prohibition should be broadened from functionally equivalent compensation to substantially similar compensation. Under the current compromise, they argued, firms could use workarounds such as money-market-fund-like structures, fixed monthly payments tied to rising balances, or rewards paid in proportion to balances after users meet a certain number of transactions.

Despite the industry's objections, the lawmakers leading the bill do not appear ready to retreat. Tillis said earlier this week that he "respectfully" disagreed with the banking sector's concerns and signaled he would move ahead with a committee vote. The Senate Banking Committee is set to begin reviewing the bill within one to two weeks.

For supporters of the measure, the legislative calendar remains the biggest obstacle. The US Senate will be in session for only two weeks in May. After that, lawmakers will effectively head into recess as attention shifts to the November midterm elections. Senator Bernie Moreno, a Republican, said that if the bill does not pass this month, further crypto legislation will be difficult to advance for some time.