US Banks Seek to Revise Stablecoin Interest Provisions in CLARITY Act as Senate Focus Shifts

U.S. banks are making a late-stage attempt to revise a compromise on stablecoin interest payments as the CLARITY Act heads toward markup, according to Eleanor Terrett, host of Crypto in America. The proposed changes target a provision that allows activity-based rewards on stablecoins, which banks argue creates a regulatory loophole that could trigger significant deposit outflows.

Banks Raise Concerns Over Stablecoin Interest Loophole

The initial compromise reportedly permitted stablecoin issuers to offer activity-based rewards—such as discounts or loyalty points tied to transaction volume—while explicitly restricting interest payments tied to deposit balances. Banks have flagged this distinction as insufficient, warning that the absence of explicit language banning deposit-like interest could allow crypto firms to structure rewards that functionally mirror traditional bank deposits, pulling customer funds away from regulated institutions.

In a letter addressed to Senator Thom Tillis and other key lawmakers, the banking industry argued that the current text does not explicitly prohibit interest based on deposit balances, creating a potential gap that could be exploited. Their proposed amendment would add more specific language to the bill, clarifying that any form of interest resembling traditional deposit accounts is prohibited for stablecoin products.

Senate Focus Shifts to Ethics and Conflicts of Interest

Despite the banking sector’s lobbying push, Terrett noted that the Senate is not treating this as a major roadblock. The legislative focus of the CLARITY Act has already moved toward broader ethical concerns, particularly around conflicts of interest for high-ranking government officials involved in crypto policymaking.

Sources familiar with the markup process indicate that the banks’ effort to amend the stablecoin interest compromise is unlikely to gain traction. Lawmakers appear more focused on finalizing provisions related to transparency and accountability rather than reopening debates on interest definitions that were already settled in earlier negotiations.

What This Means for Stablecoin Regulation

The CLARITY Act represents a significant attempt to establish a federal framework for stablecoin regulation in the U.S., addressing issues of reserve requirements, consumer protections, and issuer oversight. The interest debate, while technical, has broader implications for how stablecoins compete with traditional banking products.

If banks succeed in tightening the language, it could limit the ability of crypto platforms to offer yield-bearing stablecoin products, potentially reducing their appeal to retail users. Conversely, a more permissive approach could accelerate the shift of deposits from banks to crypto platforms, a trend that regulators have been monitoring closely.

Conclusion

As the CLARITY Act moves forward, the banking industry’s push to revise stablecoin interest rules appears unlikely to alter the bill’s trajectory. With Senate attention now centered on ethical safeguards, the stablecoin interest compromise is expected to remain largely intact. The final outcome will shape the competitive dynamics between traditional finance and the crypto sector for years to come.

FAQs

Q1: What is the CLARITY Act?
The CLARITY Act is a proposed U.S. federal law aimed at creating a regulatory framework for stablecoins, covering reserve requirements, consumer protections, and issuer oversight.

Q2: Why are banks concerned about stablecoin interest?
Banks worry that stablecoin rewards structured as activity-based incentives could function like traditional deposit interest, potentially causing customers to move funds from bank accounts to crypto platforms.

Q3: Is the banking industry’s amendment likely to pass?
According to reports, the Senate is not viewing this as a major issue, and the amendment is unlikely to be adopted as legislative focus has shifted to ethics and conflict-of-interest provisions.