A coalition of six major banking trade organizations is warning that last-minute compromise language in the Senate’s long-stalled Clarity Act could still permit crypto firms to offer interest-like rewards on stablecoins. The warning could set up a potentially decisive fight just as lawmakers race against the congressional calendar to advance digital asset legislation.
In a May 8 letter to Senate Banking Committee Chairman Tim Scott (R-SC) and Ranking Member Elizabeth Warren (D-MA), the groups said revised language negotiated by Sens. Thom Tillis (R-NC) and Angela Alsobrooks (D-MD) fails to fully close loopholes that could allow stablecoin issuers to replicate bank deposit products outside the traditional banking system.
The letter, signed by the American Bankers Association, Bank Policy Institute, Consumer Bankers Association, Financial Services Forum, Independent Community Bankers of America and National Bankers Association, comes as Senate leaders prepare to take up the Clarity Act after months of negotiations between the banking and crypto industries over stablecoin regulation, Decrypt reported.
The dispute centers on whether stablecoin issuers should be allowed to offer yield or interest-like rewards to token holders. Banks argue such programs could drain deposits from federally insured institutions and weaken lending capacity across the economy, while crypto firms contend they should be allowed to compete with traditional financial products.
The Tillis-Alsobrooks compromise language would prohibit rewards that are “economically or functionally equivalent to the payment of interest or yield on an interest-bearing bank deposit,” while still allowing certain rewards tied to governance participation, validation, staking and account activity.
The banking groups said those carveouts remain too broad.
“We are concerned, however, that the proposed language includes exceptions that will enable evasion of the intended prohibition and incentivize customers to hold and grow stablecoin balances at the expense of deposits,” the organizations wrote.
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The groups warned that widespread adoption of yield-bearing stablecoins could trigger “deposit flight” from banks and reduce the availability of credit for consumers, small businesses and agricultural lending. The letter cited research suggesting such products could reduce lending activity “by one-fifth or more.”
The organizations also argued the draft language leaves open multiple pathways for stablecoin issuers to structure rewards programs that mimic interest-bearing accounts while technically avoiding the prohibition. Among the examples cited were stablecoin products structured like money market mutual funds, flat monthly rewards that increase alongside balances, and transaction-based rewards linked to account size.
To address those concerns, the groups urged lawmakers to tighten the language by removing the word “solely” from the prohibition on rewards connected to holding stablecoins and replacing the bill’s “economically or functionally equivalent” standard with a broader “substantially similar” test.
The banks also objected to language permitting rewards “calculated by reference to a balance, duration, tenure, or any combination” of those factors, arguing such provisions directly undermine the bill’s stated goal of preventing stablecoins from functioning like deposit substitutes.
The renewed lobbying push threatens to complicate momentum behind the Clarity Act at a critical moment. According to the Decrypt report, senators had recently signaled optimism that the stablecoin yield dispute had been resolved and that a committee vote could occur within days.
Time pressure is becoming a central factor in the debate. The Senate is only scheduled to remain in session for two more weeks before activity slows ahead of the November midterm elections. Pro-crypto lawmakers have warned that failure to move the legislation this month could effectively stall comprehensive digital asset legislation indefinitely.
Sen. Bernie Moreno (R-Ohio), a member of the Banking Committee, recently warned that if the bill does not pass this month, “digital asset legislation will not pass for the foreseeable future.”
