Banking Interests Seek to Preserve Traditional Deposits Amid Rising Stablecoin Yields
By Jesse Hamilton|Edited by Nikhilesh De1 hr ago7 min readMake preferred on ShareShare this articleCopy linkX (Twitter)LinkedInFacebookEmailMake preferred on JPMorgan Chase & Co. has publicly campaigned against certain provisions of the crypto Clarity Act, which they believe threaten U.S. banking stability. (Getty Images)SummaryShow- The crypto sector believed it had resolved the debate on stablecoin rewards, but banking lobbyists are undermining previous agreements, jeopardizing the Clarity Act.
- Bank arguments about depositors migrating to stablecoins due to higher yields have been challenged by crypto advocates.
- Data indicates banks are offering lower interest rates than in the past, yet are not losing depositors, while lending remains a smaller part of their profits.
Interest rates on bank deposits have dwindled to negligible levels, and banks argue that allowing crypto platforms to provide higher yields could destabilize the U.S. economy.
This contention may have played a significant role in derailing the Senate's Digital Asset Market Clarity Act. After a prior bipartisan compromise, banking lobbyists reintroduced their concerns, further destabilizing the legislation. However, the situation regarding U.S. stablecoin yields remains unresolved.
While much attention has focused on a section of the bill addressing former President Donald Trump's business ties to crypto, the revisions concerning stablecoin yields were a critical factor in the bill's early struggles. Banks continue to assert that crypto firms could offer stablecoin rewards akin to bank interest, threatening their operations and U.S. lending.
The outcome of this legislative battle is likely to be determined next month as the Clarity Act approaches its final three weeks of Senate deliberation before midterm elections, pitting traditional banking interests against the financial might of the crypto industry.
Banks argue that their business model relies on depositors maintaining funds in accounts that yield low interest, which cannot compete with potential crypto rewards. They claim that if consumers shift to higher-yielding stablecoin options, it will hinder their ability to lend money.
JPMorgan Chase CEO Jamie Dimon argues that banks are at a disadvantage, stating that stablecoins lack the same regulatory scrutiny and requirements for tracking user identities.
"It should be fair and equal, period," Dimon stated in a June interview with Fox Business, criticizing the Clarity Act for providing insufficient protections against illicit activities.
"The banks will not accept it that way," he warned. "We'll fight it. If we lose, we lose."
GENIUS Act Establishes Regulatory Framework for Stablecoins
Stablecoins were created as a digital equivalent to traditional currency. Some, like Tether's USDT, operate outside direct regulatory oversight. However, the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act established formal regulations for stablecoin issuers, integrating them into the U.S. financial system.
The GENIUS Act currently governs stablecoins, allowing businesses to offer a full range of rewards that banks fear. Consequently, banking lobbyists are pushing for amendments to the Clarity Act to revise stablecoin reward regulations. Despite gaining some concessions, their ongoing efforts could jeopardize the bill if it fails to secure 60 Senate votes by mid-September.
If the Clarity Act fails, the current restrictions of the GENIUS Act will remain. While it prohibits stablecoin issuers from providing yields, it is less clear about what exchanges can do with customer transactions. The American Bankers Association has expressed concerns that regulators' interpretations of the law will significantly impact the viability of rewards programs.
"Concerns that these rules will not go far enough are exactly why ABA is urging Congress to tighten stablecoin reward language in the Clarity Act," the association stated.
Many crypto advocates argue that the issue of stablecoin rewards is already settled in legislation, asserting that no further changes are necessary.
"Simply put, this matter has already been dealt with," said Rashan Colbert, director of U.S. policy at the Crypto Council for Innovation.
However, some Senate Republicans have indicated they may oppose the Clarity Act without more favorable adjustments for banks, potentially preventing the bill from achieving a majority vote, let alone the necessary 60 votes.
How did things reach this point?
Interest Rates and Bank Competition
Historically, banks offered deposit interest rates that outpaced inflation, allowing savings accounts and certificates of deposit to grow significantly. However, current rates have fallen to nearly zero, even as inflation has increased. For example, a standard savings account at JPMorgan Chase currently offers just 0.01%, compared to over 4% two decades ago.
With inflation at 3.4%, even Chase's higher 3.25% rate on four-month certificates of deposit is insufficient to maintain purchasing power over time.
In contrast, stablecoin yields at exchanges like Kraken and Gemini exceed 3.75%, and Coinbase offers around 3.5%. A banking representative, who wished to remain anonymous, argued that when considering historical interest rates and current expenses, banks are actually paying more in interest than in the past.
Despite the competitive threat posed by stablecoins, banks have not responded by increasing their interest rates. They cite the burdens of regulatory requirements, such as capital and liquidity standards, as reasons for their inability to match the yields offered by crypto platforms, which they liken to money-market fund managers.
While bank profits remain high, with a record $80.5 billion industrywide profit reported in the first quarter of 2026, the percentage of loans relative to the total remains low.
Colbert countered the notion that customers would migrate to stablecoins, stating, "This has not been found to be true, or even suggested by current stablecoin activity."
Despite the stablecoin market cap surpassing $300 billion, bank deposits have continued to grow, increasing by nearly $400 billion last quarter and marking the seventh consecutive rise. U.S. banks currently hold almost $21 trillion in deposits, according to FDIC data.
Bank deposits and stablecoin holdings serve different purposes. Deposits are funds placed with banks for investment and come with federal insurance to protect depositors. In contrast, stablecoins are fully backed by reserves that cannot be repurposed, reducing the need for complex federal insurance.
However, some banking insiders argue that major stablecoin issuers are vulnerable to risks like runs and cyberattacks, necessitating regulatory oversight.
The current Clarity Act prohibits crypto platforms from offering stablecoin rewards resembling deposit interest, though it does allow rewards for token usage. Despite compromises reached between legislators, banks maintain that these provisions do not adequately protect their interests.
Impact on Lending and Community Banks
Banks argue that losing their traditional deposit base will make it more challenging and costly for them to issue loans for home purchases and business operations. However, competition from non-bank lenders has been growing, diminishing banks' dominance in mortgage origination and business lending.
Despite this, bank lobbyists emphasize that community banks will struggle to provide loans if depositors leave for crypto options.
"When crypto gets a free pass, communities pay the price," a recent advertisement from the Independent Community Bankers of America cautioned, framing the issue as a conflict between community banks and the crypto industry.
This perspective has swayed some lawmakers against the Clarity Act. Senator Josh Hawley, a Republican from Missouri, noted that constituents are concerned about the impact on community banks.
A newly formed crypto advocacy group, the Digital Sovereignty Alliance, suggests that the industry may need to concede some ground to banks to facilitate the passage of the Clarity Act. "There are some battles worth fighting for innovation, and there are some battles that are better ceded to build a durable regulatory framework," Managing Director Adrian Wall commented, emphasizing the importance of finding common ground for effective legislation.