Stablecoin proposal in CLARITY Act falls short on deposit protection

Major U.S. banking trade associations have publicly criticized the CLARITY Act’s proposed language on stablecoin yields, saying the draft “falls short” of its objective to protect bank deposits. The American Bankers Association, Bank Policy Institute, Consumer Bankers Association, Financial Services Forum and Independent Community Bankers of America issued a joint statement calling for clearer, tighter language to prevent deposit flight.

The groups pointed to Section 404 of the draft as a particular concern, arguing that permitted exceptions—such as rewards tied to exchange membership programs or activity-based incentives—could be structured in ways that mimic interest on bank deposits. Senators Thom Tillis and Angela Alsobrooks have defended their bipartisan compromise, saying it bans passive, deposit-like interest while preserving certain activity-based rewards; they have signaled the negotiation is largely closed.

Bankers warn that if stablecoin reward structures effectively replicate bank deposit yields, consumer and small-business deposits could migrate to crypto platforms, constraining banks’ ability to fund loans. The ABA statement referenced research suggesting yield-bearing stablecoins could reduce lending by roughly one-fifth in affected segments. Meanwhile, lawmakers are aiming to move the measure toward a Senate Banking Committee markup in mid-May, highlighting a compressed legislative window.

The debate sits within a broader policy landscape that includes prior stablecoin proposals such as the GENIUS Act and other regulatory initiatives seeking to reconcile innovation with financial stability. Legal and policy analyses have underscored the trade-offs: stricter prohibitions may protect deposit-taking banks, while looser rules risk migration of deposits and systemic implications. Market participants are watching final language closely because small definitional differences will determine what product designs are allowed.

Analysts expect continued lobbying from bank groups to tighten the text and from crypto firms to preserve commercial flexibility. If the current compromise holds, platforms will face clearer limits on passive yields but may still deploy activity-based reward programs; if the language is revised, firms could need to rework business models and customer incentives. The ultimate balance will shape both stablecoin product development and community bank lending dynamics in the months ahead.