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FollowingU.S. banking groups call on the Senate to tighten incentive limits in the stablecoin clarity act
Eight U.S. banking trade groups have written to Senate leaders requesting stricter limits on stablecoin rewards in the latest version of the Clarity Act. The groups are concerned that certain exceptions in the bill could allow interest-like payments, diverting customer deposits out of the banking system.
Industry calls for changes to reward terms
In a letter unanimously sent this week to Senate leaders John Thune and Chuck Schumer, banking associations pointed out that the wording of the Stabilcoin Clarification Act leaves loopholes that could allow the disbursement of rewards linked to stablecoin holdings or retention time of funds in a form similar to traditional deposit interest.
Organizations that signed the letter include major industry groups such as the American Bankers Association, the Bank Policy Institute, and the Independent Community Bankers of America, representing the voices of large banks and small community lenders. The call comes as the Senate is about to hold a procedural vote on the revised Stabiloin Clarification Act.
The letter advocates several changes, such as removing the word "solely" from rules governing payments linked to stablecoin holdings. In addition, these groups propose replacing the existing equivalence test with a criterion based on whether the payment is "substantially similar" to deposit interest, aiming to plug any gaps that might allow alternative incentive structures.
Signatory groups support a distinction between "stablecoin transaction payments" and "account activity-based rewards," but they claim that the current language is easily circumvented and could lead to interest-like dividends that mimic traditional banking products.
One of the key demands of the industry is to remove a rule that allows allowed rewards to fluctuate based on a user's balance, account duration, or tenure. Bankers point out that such standards are often used to determine traditional interest rates and warn that this may violate the bill's original prohibitive intent.
Concerns about lending ability and deposit security
Banking representatives believe that providing such incentives to stablecoin holders could divert critical funds away from traditional financial institutions, weakening their ability to provide loans to homeowners, farmers and small businesses. The letter noted that community-oriented and mission-driven banks may be particularly vulnerable, but did not provide data to estimate potential outflows or evidence of the current impact of actual lending.
The group also criticized the proposed deposit-loss "circuit breaker" mechanism-allowing regulators to step in if deposit outflows accelerate. They described the mechanism as reactive rather than preventive because it would only be triggered after a bank had already suffered a significant withdrawal.
Thegroup assert said that circuit breakers that are activated only after significant deposit losses cannot provide real protection, and urged Congress to ban stablecoin incentives that function like deposit interest before the Banking system is damaged.
The letter reiterated an initial call in May by the Banking Association to nobly limit rewards linked to account balances and emphasized the need to adopt "substantially similar" criteria to identify prohibited incentives.
Policy differences between banks and crypto companies intensify
As the Senate debate heats up, discussions on the bill have moved beyond Washington, D.C. Community bankers in multiple states are demanding stricter restrictions, while proponents of the cryptocurrency industry advocate retaining reward programs and implementing clear regulatory guidelines.
The battle over stablecoin incentives highlights growing tensions between traditional financial institutions and the digital asset space, with the two sides divided over the role of deposit-like products and the risks of unregulated competition in the loan market.
