The US crypto industry's push for regulatory clarity, embodied in the Digital Asset Market Clarity Act, has been stalled due to disagreements over stablecoin yields. Bankers have reignited the debate, claiming that the rewards programs associated with stablecoins pose a significant threat to bank deposits.
In response to a White House economists' report downplaying these risks, the American Bankers Association asserts that the analysis was based on a flawed premise. Instead of examining the consequences of banning stablecoin yields, the report should have considered the potential outcomes of allowing such yields to continue. ABA economists argue that prohibiting yield on payment stablecoins is a prudent measure, as it would enable stablecoins to develop as a payments innovation rather than a risky substitute for insured bank deposits.
This dispute has effectively derailed Senate legislation for months, with lawmakers from both parties expressing concerns that depositors may abandon traditional banks in favor of higher-yielding stablecoins. A compromise was proposed, which would ban yield on stablecoin holdings resembling deposit accounts and only permit rewards programs for activity.
However, the banking industry has not endorsed this compromise. As the debate continues, the likelihood of the Clarity Act passing through the Senate process diminishes. The bankers' latest arguments warn that failing to intervene in stablecoin yields could lead to rapid market growth, from $300 million to $2 trillion, and accelerate the migration of funds out of bank deposits. According to the ABA, leading stablecoin issuers would likely deposit their reserves in larger banks, rather than community banks, further exacerbating the risks.