The US crypto industry's main legislative effort, the Digital Asset Market Clarity Act, has been stalled due to disagreements over stablecoin yields. Bankers have reignited the debate, claiming that the industry's reward programs pose a risk to bank deposits. In response to a White House report downplaying the threat of stablecoins to banks, the American Bankers Association argues that the Council of Economic Advisers is analyzing the situation from the wrong perspective. Instead of considering the impact of banning stablecoin yields, the ABA believes the focus should be on what would happen if such yields were allowed to continue.
The ABA economists argue that prohibiting yield on payment stablecoins is a necessary safeguard to prevent them from becoming a risky substitute for insured bank deposits. This dispute has hindered the progress of the Clarity Act, which aims to regulate US crypto markets.
Lawmakers had proposed a compromise that would ban yield on stablecoin holdings resembling 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 banking industry warns that without intervention, stablecoin markets could rapidly expand, leading to a significant migration of funds out of bank deposits. According to the ABA, even if leading stablecoin issuers were to deposit reserves in banks, they would likely choose larger institutions over community banks.