Banking Trade Groups Demand Tighter Stablecoin Rewards Limits in Clarity Act Ahead of Senate Vote

Eight banking trade groups tell Senate leaders the Clarity Act still leaves loopholes for interest-like stablecoin payments

Eight of the largest banking trade groups in the United States have sent a joint letter to Senate Majority Leader John Thune and Senate Democratic Leader Chuck Schumer, urging them to tighten the stablecoin rewards restrictions inside the Clarity Act just hours before a decisive procedural vote on the market-structure bill. The groups argued that the latest revision of the draft still contains loopholes that would let stablecoin issuers make payments that function like deposit interest, pulling funding away from traditional lenders.

The signatories include the American Bankers Association, the Bank Policy Institute and the Independent Community Bankers of America, organizations that collectively represent the largest Wall Street banks as well as thousands of community lenders. Their letter, dated Monday, states plainly that the groups cannot support the current drafting of the rewards provisions as the Senate heads into a cloture vote that will determine whether the Clarity Act advances this month.

What the banks want changed

The core of the complaint is a provision in the revised bill that prohibits payments connected with holding stablecoins. The trade groups say the prohibition as drafted is too easy to evade, and they have proposed three specific fixes.

First, they want the word “solely” removed from the restriction on payments tied to stablecoin holdings, arguing the qualifier narrows the ban to payments that are exclusively connected to holding the token. Second, they want an equivalence standard replaced with a “substantially similar” test, which would broaden the restriction to capture incentives that resemble deposit interest even if they are structured differently. Third, they are asking senators to delete language that would allow otherwise permissible rewards to depend on a customer’s balance, duration or tenure.

“Given that interest payments are often calculated by reference to duration, balance and tenure, this subsection appears to contradict the initial prohibition,” the groups wrote in the letter.

The deposit-flight circuit breaker is not enough, banks say

The revised Clarity Act text includes a deposit-flight safeguard, sometimes described as a circuit breaker, that would empower regulators to step in if stablecoin rewards began draining bank deposits at a dangerous pace. The banking groups dismissed that mechanism as too reactive.

“A circuit breaker that activates only after substantial deposit flight has already occurred is not a safeguard at all,” the letter states. “Congress should address this risk upfront by ensuring the Clarity Act prohibits payment stablecoin rewards and incentives that function like deposit interest, rather than waiting for harm to banks, borrowers and communities before regulators are empowered to respond.”

The banks argue that stablecoin rewards tied to balances and holding periods would compete directly with bank deposits, the funding that lenders use to write mortgages, finance farms and extend credit to small businesses. Community and mission-driven lenders would be particularly exposed, the letter claims, because they lack the diversified funding sources of the largest institutions.

Notably, the letter provides no estimate of potential deposit outflows and presents no evidence that the predicted reductions in lending have actually occurred in any jurisdiction where yield-bearing stablecoins are already in circulation. The claim rests on the structural argument that any instrument paying interest-like returns will attract funds that would otherwise sit in banks.

A fight that has spread beyond Washington

Monday’s letter renews demands first made by six banking trade groups in May, when the industry warned that the Clarity Act’s original drafting allowed stablecoin issuers to evade the rewards prohibition. Since then, the dispute has spread to senators’ home states, with community bankers lobbying their representatives for tighter restrictions while crypto firms and their advocates rally support for the bill in its current form.

Crypto industry participants have taken the opposite position: they argue that stablecoin rewards should remain available to holders and that what the sector needs most is clear federal rules that finally establish which agencies police which assets. The Clarity Act would create that framework, defining the respective roles of the Securities and Exchange Commission and the Commodity Futures Trading Commission while setting federal standards for payment stablecoins.

Timing is everything

The letter landed on the eve of the Senate’s key procedural vote, scheduled for Tuesday, and follows the release of a revised draft of the Clarity Act that incorporated changes tied to ethics provisions for executive branch officials holding digital assets. That revision, along with a bipartisan agreement on ethics language, has shifted the odds of the bill advancing, though cloture still requires sixty votes and the banking lobby’s opposition adds pressure on undecided members.

For the banking sector, the stablecoin rewards question has become the final battleground in a legislative fight it has largely lost on other fronts. Earlier industry demands that stablecoins be restricted to chartered banks were abandoned as the GENIUS Act framework took shape, leaving the rewards prohibition as the main remaining lever for protecting deposit franchises.

For stablecoin issuers, the stakes run in the other direction. The ability to offer rewards tied to holdings is central to the business model of several major issuers and to the growth thesis for tokenized dollar products generally. A prohibition written with a “substantially similar” standard, enforced proactively rather than through a post-crisis circuit breaker, could sharply limit the yield features that have driven stablecoin adoption among retail and institutional users alike.

What happens on the Senate floor on Tuesday will answer a question that has shadowed the Clarity Act for months: whether Congress is willing to write the banking industry’s deposit-protection concerns into the primary text of the law, or whether the sector will have to live with a reactive safeguard it has already rejected as inadequate. The trade groups have made clear they consider the current drafting a loophole, and the clock now belongs to the Senate.