Eight leading banking trade groups have urged Senate leaders to strengthen restrictions on stablecoin rewards in the latest version of the CLARITY Act. In a joint letter to Majority Leader John Thune and Minority Leader Chuck Schumer, the associations argued that existing language creates openings for payments that function similarly to traditional bank interest. The letter arrives just before a key procedural vote scheduled for September 15 that requires 60 votes to advance the legislation.

The groups, which include the American Bankers Association, Bank Policy Institute, Independent Community Bankers of America, National Bankers Association, Association of Military Banks of America, Consumer Bankers Association, Financial Services Forum, and Mid-Size Bank Coalition of America, expressed support for distinguishing transaction-based rewards from those tied to holding balances. They contended, however, that the current draft leaves loopholes that could still permit interest-like incentives.

Concerns Over Deposit Outflows and Lending Capacity

Banking representatives stated that payment stablecoins were designed primarily for transactions rather than as long-term stores of value. If holders shift funds from bank accounts into stablecoins offering rewards linked to balances or holding periods, traditional institutions could lose a low-cost funding source. That loss, they said, would constrain lending for mortgages, small-business loans, agricultural credit, and other community financing. Community and mission-driven banks were described as particularly exposed.

The associations provided no specific estimates of potential deposit movements or evidence that such shifts have already reduced lending. Their letter renewed earlier calls first raised in May for clearer prohibitions on balance-linked incentives.

Specific Text Changes Sought in Section 10404

The groups requested several precise amendments to Section 10404 of the bill, which addresses interest and yield on payment stablecoins. They called for removal of the word “solely” from Section 10404(c)(1)(A). They also sought deletion of references to rewards “on a payment stablecoin balance” and “on an interest bearing bank deposit” from Section 10404(c)(1)(B).

In addition, the associations proposed replacing the bill’s “economically or functionally equivalent” standard with a “substantially similar” test. They argued the broader language would better capture arrangements that behave like deposit interest even if structured differently. The groups further recommended applying the “substantially similar” standard throughout the relevant section.

A separate request targeted Section 10404(3)(B),which permits certain rewards to vary according to a customer’s balance, duration of holding, or tenure. Banking groups noted that traditional interest rates are commonly calculated using the same factors and said the provision risks undermining the intended prohibition. They asked for its complete removal.

Criticism of the Deposit-Flight Circuit Breaker

The revised CLARITY Act includes a regulatory mechanism allowing the Treasury Department to intervene if stablecoins demonstrably pull deposits from community banks. The banking associations rejected this “circuit breaker” as inadequate.

Treasury Secretary Scott Bessent defended the provision, stating it equips the department with tools to protect community banks should stablecoins cause measurable harm. He noted that community banks play a central role in economic activity and that economic security forms part of broader national security considerations.

Counterarguments from Crypto Policy Advisers

White House crypto adviser Patrick Witt dismissed the deposit-flight concern. He observed that stablecoin reward programs have operated for years while overall bank deposits have continued to rise. Academic commentary has drawn parallels to earlier industry opposition to money-market funds in the 1970s, when similar warnings about deposit losses and reduced lending were raised.

The CLARITY Act builds on the earlier GENIUS Act, which already bars stablecoin issuers from paying interest or yield directly. The updated text continues to prohibit passive yield while expressly permitting certain activity- or transaction-based rewards. It also requires federal agencies to study deposit flows and lending effects and explicitly bars marketing of stablecoins as deposits.

An April analysis by the White House Council of Economic Advisers estimated that a complete ban on stablecoin yield would increase bank lending by approximately $2.1 billion, or 0.02 percent of the total, while producing a net welfare loss of $800 million. Even under highly expanded assumptions about stablecoin adoption, the projected lending gain remained limited.

Broader Context Ahead of the Vote

The September 14 revised text incorporated more than 100 amendments, including new ethics rules governing public officials’ involvement with digital assets and expanded enforcement authority for state attorneys general. Supporters describe the measure as ready for floor consideration; some critics have characterized the ethics provisions as insufficient.

While retail-oriented banking groups have pressed for tighter stablecoin language, several large institutions have expressed support for the overall regulatory framework. Community banks and credit unions in certain networks already collaborate with stablecoin payment providers. The outcome of the procedural vote will determine whether the Senate advances the bill that seeks to establish federal oversight of digital assets while resolving remaining disagreements over how rewards on dollar-pegged tokens may be structured.