Eight banking trade organizations have urged Senate leaders to impose stricter regulations on stablecoin rewards in the Clarity Act.
Summary
- Eight banking organizations urge Senate leaders to tighten stablecoin reward regulations.
- They want to eliminate provisions allowing rewards based on account balances and duration.
- The groups argue that proposed safeguards against deposit flight are insufficient.
In a significant move, eight banking trade organizations have formally requested that Senate leaders impose stricter regulations on stablecoin rewards as part of the Clarity Act. They argue that certain provisions in the legislation could inadvertently facilitate interest-like payments, potentially leading to a loss of deposits from traditional banks.
The letter, addressed to Senators John Thune and Chuck Schumer, indicates that these organizations cannot support the recent changes to the Clarity Act regarding stablecoin transaction rewards. They are particularly focused on imposing tighter restrictions on payments linked to customer holdings and the duration of those holdings.
“We support this distinction in principle, but we believe the current legislative language contains loopholes that could allow for interest and interest-like payments on stablecoin balances,” the letter articulated.
Notable signatories include the American Bankers Association and the Bank Policy Institute, among others, representing both large and community banks. Their appeal comes ahead of a critical Senate procedural vote related to the Clarity Act, which aims to clarify federal guidelines for digital assets.
The banking groups are advocating for the removal of the term “solely” from restrictions regarding payments tied to stablecoin holdings. They propose a shift from an equivalence standard to a “substantially similar” test, broadening the restrictions to encompass incentives that resemble deposit interest.
Additionally, they want to eliminate provisions that allow rewards based on customer balances or the duration of holding stablecoins. The groups emphasized that since interest payments are often based on these factors, such provisions contradict the intended prohibition.
They warn that these incentives could divert critical funds needed for financing mortgages and small businesses, with community-focused lenders being particularly at risk. However, they did not provide specific data on expected outflows or lending impacts.
The organizations also criticized a proposed “circuit breaker” designed to mitigate deposit flight, claiming it would only allow regulatory action after significant outflows have already occurred, rather than preventing them. “A circuit breaker that triggers only after substantial deposit flight has taken place is not a safeguard at all,” they stated. They urged Congress to proactively address these risks by ensuring that the Clarity Act prohibits stablecoin rewards that function like deposit interest.
This letter resonates with previous demands made by six banking trade groups in May for similar restrictions on rewards based on account balances. The ongoing debate has now extended to the home states of senators, with community bankers pushing for stricter regulations, while cryptocurrency advocates are rallying support for the proposed bill, emphasizing the need for clearer federal guidelines on stablecoin rewards.
