Banking groups challenge CLARITY stablecoin safeguards

Eight major US banking trade groups have urged Senate leaders to tighten the CLARITY Act’s restrictions on stablecoin rewards, warning that a new regulatory “circuit breaker” would take effect only after damaging deposit outflows had already occurred.

The warning came in a joint letter sent on Monday to Senate Majority Leader John Thune and Democratic Leader Chuck Schumer ahead of a procedural vote scheduled for Tuesday, September 15. The coalition includes the American Bankers Association, Bank Policy Institute, Consumer Bankers Association, Financial Services Forum and Independent Community Bankers of America, among other banking organisations.

The groups said the revised legislation still contains wording that could allow crypto platforms and affiliates to offer rewards on payment stablecoins that resemble interest paid on bank deposits. They argued that such incentives could encourage customers to move funds out of insured bank accounts, weakening a source of funding used for mortgages, agricultural credit, small-business loans and other lending.

Their sharpest criticism focused on a provision allowing the Treasury Secretary to intervene if payment stablecoins cause a “substantial detrimental impact” on deposits at community banks with less than $10 billion in assets. The authority would operate during an 18-month period after enactment.

“A circuit breaker that activates only after substantial deposit flight has already occurred is not a safeguard at all,” the banking groups wrote. They called for Congress to address the risk before losses occur by prohibiting payment stablecoin rewards and incentives that function like deposit interest.

The coalition also wants lawmakers to remove or narrow language that could permit rewards to depend on a customer’s stablecoin balance, the period the assets are held or similar factors. Banks say those features can make a stablecoin reward economically similar to a savings-account interest payment even if the programme is structured as a promotion or incentive.

The dispute has become one of the principal obstacles facing the CLARITY Act, a broad digital-asset market structure bill that would divide regulatory responsibilities between the Commodity Futures Trading Commission and the Securities and Exchange Commission while setting federal rules for parts of the cryptocurrency market.

Senate Republicans released revised bill text on Sunday night as negotiators sought enough support to clear the procedural hurdle. Sixty votes are required to advance the measure, meaning Republican sponsors need support beyond their conference if all members are present and voting.

Treasury Secretary Scott Bessent defended the compromise, saying he would use the new authority if stablecoins harmed community banks. He said community banks remain important to US economic performance and lending to households and businesses.

White House digital-assets adviser Patrick Witt also rejected the banking industry’s central argument, saying crypto companies have offered stablecoin rewards for years without producing the deposit flight banks predict. Witt said the draft already restricts rewards that mimic interest on bank deposits and gives Treasury additional power if outflows become a problem.

Banking groups dispute that assessment. They say the legislation’s exceptions could leave room for platforms to design programmes that technically comply with the law while still rewarding customers for holding stablecoin balances. Their letter seeks targeted wording changes rather than removal of the broader market structure framework.

Federal law already bars permitted payment stablecoin issuers from directly paying interest or yield under the GENIUS Act, but the continuing debate centres on payments made by exchanges, affiliates and other intermediaries. Banks want Congress to make clear that those arrangements cannot be used to replicate deposit interest.

Earlier this month, the American Bankers Association, Independent Community Bankers of America and state banking associations pressed senators to strengthen Section 10404 of the Senate text. They argued that payment stablecoins should remain primarily transaction instruments rather than products designed to compete with savings accounts.