The US crypto industry's key legislative push, the Digital Asset Market Clarity Act, remains stalled due to disagreements over stablecoin yields. Bankers have intensified their warnings that reward programs associated with stablecoins pose a significant threat to traditional bank deposits. In response to a White House report downplaying these risks, the American Bankers Association asserts that the analysis was misguided.
The association argues that the real concern is what would happen if stablecoin yields were permitted, rather than banned. ABA economists state, 'The CEA paper underestimates the core risk by asking the wrong question.' They believe 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 effectively derailed Senate legislation for months, with lawmakers from both parties expressing concerns that depositors might flee traditional banks for higher stablecoin yields. A proposed compromise to ban yield on stablecoin holdings resembling deposit accounts and only allow rewards for activity has not garnered support from banks. As the debate prolongs, the chances of passing the Clarity Act diminish.
The bankers argue that inaction on stablecoin yields could lead to rapid market growth, accelerating the migration of funds out of bank deposits. According to the ABA, even if leading stablecoin issuers deposit reserves in banks, these would likely go to larger institutions, bypassing community banks.