Banks Push to Close Stablecoin Yield Loophole

Highlights

Eight banking trade associations wrote Senate leaders Monday demanding tighter stablecoin reward limits
They want the word "solely" struck from the bill's restriction on stablecoin-linked payments
The letter renews a fight six banking groups first raised in May, now expanded to lobbying in senators' home states

While the CLARITY Act's ethics language has dominated the headlines, a quieter fight over stablecoins has been running in parallel — and on Monday, the banking industry escalated it. Eight trade associations sent a letter to Senate Majority Leader John Thune and Minority Leader Chuck Schumer arguing that the bill's current text leaves the door open for stablecoin issuers to pay something that looks a lot like bank interest, without technically calling it that.

The signatories include the American Bankers Association, the Bank Policy Institute and the Independent Community Bankers of America — a coalition spanning both Wall Street's largest lenders and thousands of small community banks. Their argument is that any legislation allowing stablecoin issuers to pass yield to holders, even indirectly, risks pulling deposits out of the banking system and into digital dollars, starving banks of the funding they use to make mortgages, farm loans and small-business credit.

The letter zeroes in on three specific pieces of legislative language. First, it asks lawmakers to delete the word "solely" from the clause restricting payments connected to holding stablecoins — as written, the groups argue, that single word carves out room for issuers to structure rewards that function identically to interest without falling under the ban. Second, it wants the bill's "equivalence" standard replaced with a broader "substantially similar" test, which would catch a wider range of incentive structures designed to mimic deposit interest. Third, it asks Congress to strip out language that would let rewards legally depend on a customer's balance size, how long they've held a stablecoin, or how long they keep funds parked — the exact mechanics, banks say, of an interest payment by another name.

"The way the current legislative text is drafted provides loopholes and avenues for the prohibition to be easily evaded that would still allow interest and interest-like payments to be made on stablecoin balances," the groups wrote. They also took direct aim at a circuit-breaker provision meant to act as a backstop against sudden deposit flight, calling it toothless as written: a safeguard that only activates after the damage is already done isn't a safeguard at all, they argued, since by the time regulators can respond, the deposits are already gone.

This isn't the banking industry's first attempt to reshape the stablecoin provisions. A smaller coalition of six groups raised nearly identical concerns back in May, and Monday's letter — now with eight signatories — shows the objection has only gained support rather than faded as the bill moved closer to a vote. Bank lobbyists have also broadened the fight beyond Washington, pressing the case directly with senators in their home states, a sign the industry sees this fight as far from settled even if Tuesday's cloture vote succeeds.

The stablecoin dispute adds a second axis of tension to a bill already fighting for votes over its crypto ethics language, and it illustrates why the CLARITY Act has proven so difficult to finalize: as Decrypt reported, the legislation is trying to simultaneously satisfy a crypto industry that wants clear rules to operate under and a banking sector determined not to let those rules open a side door into its deposit base. Neither fight is really about crypto market structure in the abstract — both are about who controls the next generation of digital dollars, and how much of the traditional banking system's core business model survives the transition.