The US crypto industry's legislative push, embodied by the Digital Asset Market Clarity Act, has been stalled due to disagreements over stablecoin yields. Bankers have reignited the debate, arguing that stablecoin reward programs pose a significant threat to bank deposits. In response to a White House report downplaying the risks, the American Bankers Association asserts that the administration's economists are focusing on the wrong scenario.
Instead of analyzing the effects of banning stablecoin yields, they should consider the consequences of allowing such returns. The ABA economists argue that prohibiting yield on payment stablecoins is a necessary precaution to prevent them from becoming a risky substitute for insured bank deposits. This dispute has hindered the progress of the Clarity Act, with lawmakers from both parties being swayed by the bankers' concerns that depositors might abandon traditional banks for higher-yielding stablecoins. A proposed compromise to ban yield on stablecoin holdings resembling deposit accounts and only permit rewards programs for activity has not been met with enthusiasm from the banking sector.
As the debate drags on, the prospects of the Clarity Act passing through the Senate process become increasingly uncertain. Crypto insiders have been vocal about the issue, while bank representatives have been more restrained in their comments.
The bankers' latest arguments warn that failing to intervene in stablecoin yields could lead to a rapid expansion of the stablecoin market, potentially accelerating the migration of funds out of bank deposits. According to the ABA, leading stablecoin issuers would likely deposit their reserves in larger banks, bypassing community banks.