Bank Leaders Push Senate to Rewrite Stablecoin Provision

The bank leaders’ CLARITY Act letter urged U.S. Senator John Thune (R-SD), Majority Leader of the U.S. Senate, and U.S. Senator Charles Schumer (D-NY), Minority Leader of the U.S. Senate, to revise Section 10404 of the CLARITY Act.

Section 10404 of the crypto legislation establishes restrictions on paying interest or yield on payment stablecoins. The banking executives want lawmakers to strengthen the provision so companies cannot bypass the prohibition through rewards, incentives, or other arrangements that create similar economic benefits for holding stablecoins.

The bank leaders stated:

“We therefore urge the Senate to incorporate the targeted Section 10404 changes recommended by our state bankers associations before final passage.”

“If stablecoin products are permitted to attract and retain balances through interest-like rewards or other holding-based incentives, the local funding base that supports this lending could be weakened by hundreds of billions,” the group warned.

The letter argues that deposits provide the foundation for lending to families, small businesses, farmers, and local employers. The signatories said clear rules would allow payment stablecoins to develop while preserving the funding channels that support community lending.

Stablecoin Rewards Become Central Issue in Crypto Legislation

The debate highlights a broader disagreement over the future role of stablecoins in financial markets. Bankers argue payment stablecoins should remain focused on transactions rather than become products designed to attract long-term holdings.

The banking industry has previously raised stablecoin yield concerns as digital asset companies and policymakers examine how rewards, incentives, and reserve structures could affect competition with traditional financial institutions.

The signatories argued that incentives tied to balances, holding periods, or account duration could replicate features of interest-bearing products, creating the need for clearer boundaries in the CLARITY Act.

The issue has also emerged in discussions surrounding the bill’s treatment of stablecoin incentives, with the CLARITY Act stablecoin rewards debate highlighting disagreements over how regulators should define prohibited yield arrangements.

Banks Warn Stablecoin Growth Could Change Lending Landscape

Bank leaders say deposits remain a major source of funding for mortgages, business expansion, agricultural operations, and community investment. They argue that stablecoin products designed around holding incentives could alter those funding flows.

The debate follows broader industry concerns about stablecoin deposit risks as financial institutions evaluate how digital assets may compete with traditional banking products.

The proposed CLARITY Act revisions would preserve stablecoin payment innovation while limiting structures that bankers believe could replicate deposit-like incentives without the same regulatory framework applied to insured banks.

The Senate’s final language on stablecoins will define how payment-focused digital assets operate within the broader U.S. financial system.