The crypto industry’s flagship effort in American politics, the Digital Asset Market Clarity Act, has remained deadlocked on a point over stablecoin performance that has little to do with the bill’s central goal of regulating American crypto markets. It remains a flashpoint as bankers launch the latest salvo to claim that the industry’s rewards programs are a danger to bank deposits.
Responding to a recent report from White House economists that banks have little to fear from the rise of stablecoins, the American Bankers Association maintains that the Council of Economic Advisers was looking at the wrong scenario. Instead of looking at what would happen if Congress instituted a ban on stablecoin yields now, it should have looked at what would happen if such stablecoin yields were allowed.
“The CEA document minimizes the central risk by starting from the wrong question,” according to ABA economists. “There is already ample evidence and analysis to show that a ban on payment stablecoin performance is a prudent safeguard. Such a policy will allow stablecoins to mature as a payments innovation rather than as an economically risky substitute for insured bank deposits.”
This conflict over an issue already partially addressed in last year’s Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act effectively derailed Senate legislation for months. Although lawmakers supporting the Clarity Act have predicted that it could have its necessary hearing in 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 fund their loans) would leave them en masse to chase stablecoin yields that exceed what the banks offer in interest. Lawmakers then reached a compromise that would ban the yield on stablecoin holdings that look like deposit accounts and only allow activity-based rewards programs, similar to credit card rewards. But the banks have not come out to celebrate.
Sen. Cynthia Lummis, a Wyoming Republican who chairs the Banking Committee’s digital assets subcommittee, posted Monday on social media site X: “America needs clarity.” He has maintained a steady stream of posts on the issue and over the weekend said it is “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 could lead to a floor vote. While crypto experts have been relatively explicit about the crash, bank representatives have been more reserved.
The latest arguments from bankers suggest that no intervention on stablecoin performance now would allow stablecoin markets to rapidly scale from $300 million to as much as $2 trillion.
“In a larger market, yield is not a minor characteristic of the product; it is the mechanism that would accelerate the outflow of bank deposits,” they maintain.
And while major stablecoin issuers would deposit reserves with banks, they would likely go to larger institutions and not community banks, according to the ABA’s thinking.
Read More: Clarity Act Returns to US Senate, Bank Profits: Crypto Week Ahead
