Key Takeaways
A coalition of six major U.S. banking trade groups has formally opposed new language in the Clarity Act, arguing a proposed compromise on stablecoin rewards creates a loophole that would disrupt the traditional banking sector. The opposition re-ignites a battle between traditional finance and the crypto industry over the future of digital payments.
"We are concerned… that the proposed language includes exceptions that will enable evasion of the intended prohibition," the groups, representing all major national banks and community banks in all 50 states, wrote in a letter to the Senate Banking Committee.
The dispute centers on a compromise drafted by Senators Thom Tillis and Angela Alsobrooks. While it prohibits payments "economically or functionally equivalent" to interest on an interest-bearing bank deposit, it would permit rewards tied to a user's account balance. The banking groups are asking to change this to a prohibition on payments "substantially similar" to yield and to strike any reference to account balances.
The standoff places the Clarity Act, a major legislative framework for U.S. crypto markets, in a precarious position. With a Senate Banking Committee vote expected as soon as next week, this opposition could delay or derail the bill ahead of the November midterm elections, a deadline pro-crypto lawmakers have called critical for the industry's future.
At the heart of the conflict is the banking industry's fear of "deposit flight." Banks argue that if crypto companies can offer rewards on stablecoins that function like interest, customers will pull their money from traditional, low-yield savings accounts, threatening financial stability.
Crypto firms maintain they should be allowed to compete. Faryar Shirzad, Chief Policy Officer at Coinbase, has previously stated that rewards are "critical for adoption" and that the industry could live with the compromise language. He characterized the ongoing legislative effort as a "15 round heavyweight championship fight" with the banking lobby.
The banking groups' letter details several reward programs they believe could exist under the proposed language, including flat monthly payments that increase with a user's balance or payments triggered by a certain number of monthly transactions.
Time is running out for the Clarity Act to pass this year. The Senate is only in session for two more weeks this month before the legislative calendar grinds to a halt for the midterm elections.
The bill, which passed the House last July, would require support from at least seven Democrats to overcome a potential filibuster in the full Senate. Pro-crypto Senator Bernie Moreno (R-OH) recently warned that if the bill does not pass this month, "digital asset legislation will not pass for the foreseeable future." The outcome of this last-ditch lobbying effort by the banking industry will likely determine the regulatory landscape for stablecoins in the U.S. for years to come.
This article is for informational purposes only and does not constitute investment advice.
