On July 13, major banking groups including the American Bankers Association and the Independent Community Bankers of America submitted a letter to Senate leaders advocating for targeted amendments to the CLARITY Act, particularly focusing on Section 404, which addresses stablecoin yield. The letter was directed to Majority Leader John Thune and Minority Leader Chuck Schumer, underlining the urgency of the proposed changes.

Section 404 restricts covered parties from offering returns solely for holding payment stablecoins or providing yields equivalent to bank deposit interest. It retains reward systems tied to transactional activity. The banking groups propose several specific modifications: removing the word “solely” from subsection (1)(A), eliminating certain phrases from (1)(B), and replacing the “economically or functionally equivalent” standard with “substantially similar” across Section 404. They also suggest completely deleting subsection (3)(B). These adjustments are intended to prevent companies from designing incentive models that circumvent existing prohibitions.

In their communication, the bankers voiced strong concerns that current ambiguities might inadvertently allow stablecoin arrangements to act as alternatives to traditional deposits. They emphasized the practical risks, stating that diminishing local deposits could disrupt the flow of funds necessary for home loans, small businesses, and agricultural financing. Their perspective aligns with earlier sentiments expressed in a letter from five U.S. banking lobbies earlier this year, demonstrating a concerted effort to refine the statutory language for clarity and efficacy.

The ongoing debate about yield arrangements for stablecoins is one of the critical issues that have delayed progress on the CLARITY Act. Lawmakers are also grappling with discussions around Section 604, which pertains to developer protections and ethics rules. As the Senate approaches its August recess, the capacity of leaders to reconcile these disputes remains uncertain.

This material is for informational purposes only and is not financial advice.