Senate blocks CLARITY Act despite White House data

The US Senate failed to advance the CLARITY Act on Tuesday, handing the cryptocurrency industry a major setback despite a late White House effort to challenge banking-sector warnings that stablecoin rewards could drain deposits and curb lending.

The procedural vote ended 50-49 in favour of advancing the legislation, 10 votes short of the 60 required. Republican senators Jerry Moran, Rand Paul, Josh Hawley and Thom Tillis joined Democrats in opposing the motion, although Tillis switched to no for procedural reasons that preserve the option of seeking reconsideration.

Hours before the vote, the White House Council of Economic Advisers promoted an interactive model intended to let lawmakers and the public test assumptions behind claims that interest-like rewards on stablecoins would cause damaging deposit flight from community banks. The tool built on an April CEA analysis that concluded a broad prohibition on stablecoin yield would have only a marginal effect on bank lending under its baseline assumptions.

The CEA model estimated that eliminating stablecoin yield would increase total bank lending by $2.1 billion, equivalent to 0.02 per cent of outstanding loans. It projected about $500 million of additional lending by community banks, or 0.026 per cent of their loan books. The analysis argued that substantially larger effects required extreme assumptions about stablecoin growth, reserve composition and Federal Reserve policy.

The White House study also tested a deliberately severe scenario. Under assumptions including a stablecoin market roughly six times larger relative to deposits, reserves held entirely in forms unavailable for lending, and a change in the Federal Reserve’s operating framework, it calculated additional bank lending from a yield ban at $531 billion. Community-bank lending would rise by $129 billion, or 6.7 per cent, under that extreme combination.

CEA chair Chris Phelan said the model was designed to allow users to alter the parameters and run scenarios themselves. The administration’s argument was that available evidence did not support assertions of a meaningful relationship between stablecoin expansion and deposit losses at community banks.

Banking groups remained unconvinced. Their central concern was that crypto platforms could effectively offer rewards on dollar-backed stablecoins even though the 2025 GENIUS Act bars stablecoin issuers themselves from paying interest or yield. Banks argued that third-party reward arrangements could make stablecoins more competitive with deposits, reducing funding available for mortgages, small-business credit and agricultural lending.

A revised CLARITY Act released by Senate Republicans before the vote sought to answer that concern with a regulatory circuit breaker. It would have given the Treasury secretary authority to respond if payment stablecoins caused a substantial detrimental impact on community banks. Banking associations said intervention should not depend on waiting until measurable damage had already occurred and continued pressing for a direct prohibition on interest-like rewards.

Stablecoins, however, were only one obstacle. Democrats also demanded stronger ethics provisions governing digital-asset interests held by senior public officials, with President Donald Trump’s family crypto ventures at the centre of the dispute. Republicans said the final text incorporated 126 substantive changes requested by Democrats and substantially reflected a bipartisan ethics proposal, including a role for state attorneys general in enforcement.

Opponents said the revised safeguards still did not go far enough. The bill also faced continuing arguments over illicit-finance controls and the legal treatment of software developers and decentralised finance.

The legislation would have created a federal market structure for digital assets and clarified the respective roles of the Securities and Exchange Commission and Commodity Futures Trading Commission. Crypto companies have argued that congressional legislation is needed to provide durable rules that cannot easily shift between administrations or be overturned through litigation.

Tuesday’s defeat leaves that task largely with regulators for now. The SEC and CFTC can continue writing rules and changing enforcement policy, but their authority does not provide the permanence that legislation could establish.