Banking groups in the US are urging Senate amendments to the CLARITY Act to address stablecoin yield loopholes, emphasizing the need for clear regulations.
A coalition of banking organizations, including the American Bankers Association and the Independent Community Bankers of America, has urged the Senate to amend the CLARITY Act to close potential loopholes related to stablecoin yields. In a joint letter, they highlighted concerns over Section 404, stating that the current language could enable arrangements that mimic interest payments on deposits.
The banks advocate for a regulated market for digital assets, underscoring that payment stablecoins should exclusively facilitate transactions rather than serve as vehicles for generating passive income. They expressed that ambiguities within the bill could encourage practices where stablecoins act as deposit substitutes.
“Uncertainties in the bill could lead to schemes with stablecoins that effectively become substitutes for deposits,” the authors of the letter stated.
Currently, the CLARITY Act bars crypto service providers from offering passive yields to American clients on payment stablecoin balances. However, it does allow for rewards based on user activities. Banking associations have pointed out the lack of clear distinction between these two forms of compensation and proposed that any payment depending on the quantity or duration of stablecoin holdings should be excluded from allowable rewards.
They also recommended replacing the term “functional and economic equivalence” in the bill with “substantial similarity” to prevent circumvention of the yield ban through reward programs. The groups warned that diverting deposits into stablecoins could weaken funding for mortgages and small business loans in regional banks.
Next Steps for the CLARITY Act
The CLARITY Act aims to create a federal framework for the regulation of digital assets, defining the roles of the SEC and CFTC. It was passed by the Senate Banking Committee in May with a vote of 15-9. While the bill awaits consideration by the full Senate, a date for a vote has not yet been established.
CFTC Chairman Michael Cella has urged for prompt action on the legislation, warning that a lack of congressional oversight would lead regulators to impose their own rules on the cryptocurrency sector. This sentiment was also echoed by former President Donald Trump earlier this year. Additionally, JPMorgan CEO Jamie Dimon criticized the act for permitting rewards to stablecoin holders, stating that any crypto firms wishing to provide interest-like returns should seek appropriate banking licenses.
