In a letter regarding the CLARITY Act, bank executives urged U.S. Senator John Thune (Republican from South Dakota), the Senate Majority Leader, and U.S. Senator Charles Schumer (Democrat from New York), the Senate Minority Leader, to revise Section 10404 of the CLARITY Act.
Section 10404 of the cryptocurrency legislation sets restrictions on paying interest or yield on payment stablecoins. Bank executives want legislators to tighten this provision so that companies cannot circumvent the prohibition through rewards, incentives, or other mechanisms that create similar economic benefits for holding stablecoins.
The bank executives stated:
"Therefore, we strongly urge the Senate to include the targeted changes to Section 10404 recommended by our state banking associations in the final version of the bill."
"If stablecoin-based products are permitted to attract and retain funds through interest-like rewards or other storage-related incentives, the local funding base enabling such lending could shrink by hundreds of billions," the group warned.
The letter argues that deposits serve as the foundation for lending to families, small businesses, farmers, and local employers. The signatories stated that clear rules would allow payment stablecoins to develop while preserving the funding channels that support lending to local communities.
Stablecoin Rewards Become Central Issue in Cryptocurrency Legislation
This discussion highlights broader disagreements regarding the future role of stablecoins in financial markets. Bankers argue that payment stablecoins should remain transaction-oriented, not evolve into products designed to attract long-term investments.
The banking industry had previously expressed concerns about stablecoin yields, as digital asset companies and policymakers examine how rewards, incentives, and reserve structures could affect competition with traditional financial institutions.
The letter signatories contend that incentives tied to account balances, holding periods, or account duration could replicate features of interest-bearing products, creating a need for clearer boundaries in the CLARITY Act.
This issue has also been raised during discussions concerning the bill's approach to stablecoin incentives, with debates over stablecoin rewards within the CLARITY Act revealing disagreements on how regulators should define prohibited yield mechanisms.
Banks Warn: Growth of Stablecoins Could Alter Lending Landscape
Bank executives state that deposits remain the primary funding source for mortgages, business expansion, agricultural activity, and community investments. They argue that stablecoin-based products designed with holding incentives could redirect these funding flows.
These debates are occurring against the backdrop of the industry's broader concerns regarding the risks associated with stablecoin deposits, as financial institutions assess how digital assets might compete with traditional banking products.
The proposed amendments to the CLARITY Act would preserve innovation in stablecoin payments while restricting structures that, according to bankers, could replicate deposit-like incentives without applying the same regulatory framework as insured banks.
The final Senate text on stablecoins will determine how payment-focused digital assets will function within the broader U.S. financial system.
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