The US crypto industry's key legislative effort, the Digital Asset Market Clarity Act, remains stalled due to disagreements over stablecoin yields. Bankers have reignited the debate, claiming that the industry's reward programs pose a threat to bank deposits. In response to a White House report downplaying the risks, the American Bankers Association argues that economists analyzed the wrong scenario.
Instead of examining the effects of a ban on stablecoin yields, they should have considered the consequences of allowing such returns. According to ABA economists, 'The CEA paper minimizes the core risk by starting from the wrong question.' They believe that prohibiting yield for payment stablecoins is essential to prevent them from becoming a risky substitute for insured bank deposits.
This dispute has stalled Senate legislation for months, despite lawmakers' efforts to find a compromise. The conflict centers around the potential for stablecoin yields to outpace bank interest rates, prompting depositors to leave banks in search of higher returns. While a compromise has been proposed, banning yield on stablecoin holdings that resemble deposit accounts and only allowing rewards programs for activity, banks remain unconvinced. The debate's prolongation makes it increasingly challenging to pass the Clarity Act.
The bankers' latest arguments warn that failing to intervene in stablecoin yields could lead to rapid market growth, accelerating the migration of funds out of bank deposits. They contend that even if leading stablecoin issuers deposit reserves in banks, they will likely choose larger institutions over community banks.