The US crypto industry's key legislative push, the Digital Asset Market Clarity Act, remains stalled due to disagreements over stablecoin yields, which bankers claim pose a threat to traditional bank deposits. In a rebuttal to a White House report downplaying the risks, the American Bankers Association asserts that economists are examining the wrong scenario, focusing on the consequences of banning stablecoin yields instead of considering the potential outcomes if such yields are permitted. ABA economists argue that the White House's analysis 'minimizes the core risk by starting from the wrong question,' emphasizing that prohibiting yield on payment stablecoins is essential for ensuring they develop as a payment innovation rather than a risky substitute for insured bank deposits.

This debate, which has been ongoing since last year's Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act, has effectively stalled Senate legislation for months, with lawmakers predicting a necessary hearing in the Senate Banking Committee by the end of the month. Senators from both parties have been swayed by bankers' concerns that depositors might abandon traditional banks for higher stablecoin yields, leading to a compromise that would ban yield on stablecoin holdings resembling deposit accounts and only allow rewards programs for activity.

However, banks have not endorsed this compromise, and the debate continues, with Senator Cynthia Lummis urging the need for clarity on the issue. As the debate prolongs, the challenge of passing the Clarity Act through the Senate process becomes more daunting, with crypto insiders vocal about the clash and bank representatives more reserved.

The bankers' latest arguments suggest that inaction on stablecoin yield would enable stablecoin markets to rapidly expand from $300 million to $2 trillion, with yield becoming a key mechanism driving migration out of bank deposits. According to the ABA, leading stablecoin issuers would likely deposit reserves in larger banks, bypassing community banks.