Banking Industry Says Clarity Act Stablecoin Proposal Would Enable ‘Evasion’

A coalition of the country’s top banking trade groups, representing both Wall Street giants and community banks, issued a statement Friday expressing concerns that new language in a major crypto bill would benefit digital asset companies and disrupt the traditional banking industry.

For months, the banking industry and the crypto lobby have battled over key words in the Clarity Act, a bill that would formally legalize most crypto activities in the United States.

Banks want to add language to legislation banning crypto companies from offering returns on stablecoins, cryptocurrencies that are pegged to the value of the U.S. dollar. The banks say such programs could make traditional low-interest savings accounts less attractive; crypto companies, including Coinbase, have argued that they need to be able to compete with traditional financial institutions.

For nearly four months, the skirmish over stablecoin proceeds has prevented the Clarity Act from making any progress in the Senate. Last week, two key lawmakers on the Senate Banking Committee finally unveiled a proposed compromise on the issue, which crypto leaders quickly embraced.

Senators soon after expressed optimism that the problem had been resolved and that a committee vote on the Clarity Act was near.

But now a united front of top banking trade groups is calling for further changes to the proposed language, arguing that the current draft contains loopholes that could allow crypto companies to sidestep intended bans on stablecoin proceeds.

The compromise language, authored by Senators Thom Tillis (R-NC) and Angela Alsobrooks (D-MD), would prohibit the payment of rewards on stablecoins in a manner that is “economically or functionally equivalent to the payment of interest or yield on an interest-bearing bank deposit.”

But it would also potentially greenlight rewards related to board participation, validation and staking – and rewards calculated based on a user’s account balance.

Today, six banking trade groups, representing all major national and community banks in all fifty states, wrote a notice letter to the Senate Banking Committee, arguing that these exceptions are too broad.

“We are concerned… that the proposed language contains exceptions that will allow circumvention of the intended ban and incentivize customers to hold and grow stablecoin balances at the expense of deposits,” the groups said.

The letter includes specific questions about reformulating the terminology for stablecoin yields – including removing the ability for rewards to reference account balances in any way, and changing the ban on payments that are “economically or functionally equivalent” to yield to a ban on payments that are “substantially similar” to yield.

The letter lists numerous potential stablecoin rewards programs that the banking groups say could exist under proposed language that would violate the spirit of any potential compromise. These include payments that are structured like a money market fund, payments of a fixed monthly reward that increases as the account balance increases, and payments that are based on the account balance but are triggered by completing a certain number of monthly transactions.

When banks first raised concerns about the new language earlier this week, Senator Tillis said replied in a statement that he and Sen. Alsobrooks “respectfully agree to disagree” — indicating lawmakers were prepared to move forward with a committee vote on the bill regardless.

Declutter contacted the two senators about the more detailed concerns raised today by the banking transactions, but did not immediately receive a response.

Time is of the essence for proponents of the Clarity Act, which senators on the Banking Committee have promised will be considered next week or the week after.

The Senate has been in session for just two weeks this month and will soon come to a standstill ahead of the November midterm elections. Senator Bernie Moreno (R-OH), a pro-crypto member of the Senate Banking Committee, recently insisted that if the bill does not pass this month, “digital asset legislation will not be passed in the near future.”