The US crypto industry's push for regulatory clarity, as proposed in the Digital Asset Market Clarity Act, has been stalled due to disagreements over stablecoin yields. Bankers have expressed concerns that these yields could lure depositors away from traditional banks, posing a risk to the banking system. In response to a White House report downplaying these risks, the American Bankers Association argues that the wrong scenario was being considered.
Instead of focusing on the effects of banning stablecoin yields, the association believes the analysis should have looked at the potential consequences of allowing such yields to continue. 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 debate has been ongoing and has hindered the progress of the Clarity Act, with senators from both parties being swayed by the bankers' arguments. A compromise was proposed to ban yield on stablecoin holdings that resemble deposit accounts, but the banking industry remains unsatisfied.
The longer the debate continues, the more challenging it will be to pass the Clarity Act. The bankers warn that without intervention, the stablecoin market could rapidly expand, leading to a significant migration of funds out of bank deposits.
They also suggest that leading stablecoin issuers would likely deposit their reserves in larger banking institutions, bypassing community banks.