Banks Warn CLARITY Act Could Drain Deposits, Cut Loans

The Bank Policy Institute, the American Bankers Association and allied banking trade groups sent a joint letter to Senate Banking Committee leaders and published a BPI newsletter on May 9 warning that Section 404 of the Tillis‑Alsobrooks CLARITY Act contains drafting gaps that could allow crypto firms to offer yield‑like rewards on stablecoins.

The groups contend two exceptions in the current text create loopholes. One allows payments tied to participation in membership programs if those payments are not calculated or distributed the same way bank interest is. The other permits rewards to be calculated by balance size, holding duration and account tenure. The coalition argues those mechanisms can encourage users to hold stablecoins for passive returns.

The letter states: “Our concern is that payment stablecoin yield, or incentives that act like yield, can reduce U.S. deposits and, in turn, banks’ capacity to extend credit across the country.” The groups say if stablecoins begin offering returns that resemble savings interest, deposits could flow from banks to crypto platforms.

BPI published a research note that models how Treasury‑backed stablecoins would affect bank funding. The note argues such stablecoins would remove deposits from the banking system rather than redistribute them, altering interest rates and asset‑liability positions and reducing funds available for loans.

Research cited by the trade groups projects that yield‑bearing stablecoins could lower consumer, small‑business and farm lending by roughly 20% if Section 404 is not revised to close the identified gaps.

Senators Thom Tillis and Angela Alsobrooks defended the compromise language. In a social media post, they wrote the text is meant to ban yield that is economically equivalent to bank deposits while still permitting genuine activity‑based rewards tied to platform participation. Their statement adds the language aims to provide bipartisan regulatory clarity to support innovation.

A Senate Banking Committee markup of the CLARITY Act is expected the week of May 12, when Congress returns from recess. The White House has targeted full passage of the bill by July 4.

The banking coalition asked committee leaders to tighten the Section 404 wording before the markup so the ban on deposit‑equivalent yield cannot be circumvented through different labels or program designs.

Consumer advocates have raised similar drafting concerns. An Americans for Financial Reform report published May 5 questioned the economic analysis used to support the White House Council of Economic Advisers’ view on stablecoin yield. The BPI letter frames the issue in terms of bank funding and lending capacity and includes a quantitative estimate of potential lending losses.

Committee members will vote on the precise wording of the stablecoin yield prohibition during the markup. The Senate decision on whether to revise Section 404 will determine whether the organized banking industry continues to press for changes.