134 bank leaders urged U.S. Senate lawmakers to strengthen stablecoin interest and yield restrictions in the CLARITY Act. The group sent a letter to Senate Majority Leader John Thune (R-SD) and Minority Leader Charles Schumer (D-NY) requesting revisions to Section 10404, which establishes restrictions on paying interest or yield on payment stablecoins. The banking executives warned that if stablecoin products are permitted to attract balances through interest-like rewards or holding-based incentives, the local funding base supporting lending to families, small businesses, and farmers could be weakened by hundreds of billions. The letter stated the Senate should incorporate targeted Section 10404 changes recommended by state bankers associations before final passage. Section 10404 currently prohibits interest payments on payment stablecoins, but bankers argue companies could bypass the restriction through rewards, incentives, or other arrangements creating similar economic benefits for holding stablecoins.
134 Bank Leaders Request Section 10404 Revision in CLARITY Act
The bank leaders' letter urged Senator John Thune (R-SD), Majority Leader of the U.S. Senate, and Senator Charles Schumer (D-NY), Minority Leader of the U.S. Senate, to revise Section 10404 of the CLARITY Act. Section 10404 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." The group warned: "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 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.
Bankers Define Core Dispute Over Stablecoin Function
The debate highlights a 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 emerged in discussions surrounding the bill's treatment of stablecoin incentives, with disagreements over how regulators should define prohibited yield arrangements.
Bank Leaders Warn of Deposit Base Impact on Local Lending
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 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.
FAQ
What did 134 bank leaders ask the Senate to do regarding the CLARITY Act?
134 bank leaders sent a letter to Senate Majority Leader John Thune (R-SD) and Minority Leader Charles Schumer (D-NY) urging them to strengthen Section 10404 of the CLARITY Act. Section 10404 restricts paying interest or yield on payment stablecoins, and the bankers want the provision strengthened so companies cannot bypass the prohibition through rewards, incentives, or other arrangements creating similar economic benefits for holding stablecoins.
Why do bank leaders oppose stablecoin rewards and incentives?
Bank leaders warned that if stablecoin products are permitted to attract and retain balances through interest-like rewards or holding-based incentives, the local funding base supporting lending to families, small businesses, farmers, and local employers could be weakened by hundreds of billions. The bankers argue deposits provide the foundation for community lending, and stablecoin incentives could alter those funding flows.
What is the core dispute over payment stablecoins in the CLARITY Act?
Bankers argue payment stablecoins should remain focused on transactions rather than become products designed to attract long-term holdings. The signatories stated 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 to distinguish stablecoins from traditional deposit products.
