The crypto industry’s main effort in US politics – the Digital Asset Market Clarity Act – has been stuck on a point regarding stable coin yield that has little to do with the bill’s central goal of regulating US crypto markets. It remains a sticking point as bankers have fired the latest salvo to claim the industry’s reward schemes pose a danger to bank deposits.
In response to a recent report from White House economists that said banks have little to fear from the rise of stablecoins, the American Bankers Association says the Council of Economic Advisers was analyzing the wrong scenario. Instead of examining what would happen if Congress banned stablecoin yields now, it should have examined what would happen if such stablecoin yields were allowed.
“The CEA paper downplays the main risk by starting with the wrong question,” according to ABA economists. “There is already ample evidence and analysis showing that a yield ban on payment stablecoins is a prudent safeguard. Such a policy will allow stablecoins to mature as a payment innovation rather than an economically risky substitute for insured bank deposits.”
This conflict over a topic already partially addressed in last year’s Directing and Establishing National Innovation for American Stablecoins (GENIUS) Act effectively derailed Senate legislation for months. Although legislators championing the Clarity Act have predicted that it could get the necessary hearing before the Senate Banking Committee before the end of this month, that session has not yet been scheduled.
Senators from both parties were moved by bankers’ arguments that their depositors (who finance their loans) would leave them en masse to seek a stable return in coins above what the banks offer in interest. So lawmakers struck a compromise that would prohibit returns on stablecoins that resemble deposit accounts and only allow reward programs for activity, similar to credit card rewards. But the banks didn’t applaud it.
Sen. Cynthia Lummis, a Wyoming Republican who chairs the Banking Committee’s digital assets subcommittee, posted on the social media site X on Monday: “America needs clarity.” She maintained a steady stream of messages on the subject, saying over the weekend that it was “now or never” for the bill.
The longer this debate drags on, the more difficult it will be to get clarity through the Senate process that can lead to a floor vote. While crypto insiders have been relatively vocal about the conflict, bank representatives have been more reserved.
The bankers’ latest arguments suggest that no intervention in stablecoin yield would allow stablecoin markets to quickly grow from $300 million to $2 trillion.
“In a broader market, yield is not a minor product feature; it is the mechanism that would accelerate the migration away from bank deposits,” they argue.
And while major stablecoin issuers would deposit reserves in banks, they will likely flow to larger institutions and not community banks, according to the ABA’s thinking.
Read more: Clarity Act returns to US Senate, banking results: Crypto Week Ahead
