The US crypto industry's push for regulatory clarity, through the Digital Asset Market Clarity Act, remains stalled due to disagreements over the impact of stablecoin yields on bank deposits. In response to a recent White House economic report downplaying these risks, the American Bankers Association has countered that the analysis starts with the wrong premise. Instead of examining the repercussions of banning stablecoin yields, the focus should be on the potential consequences of allowing such yields to continue.
ABA economists argue that prohibiting yield on payment stablecoins is a necessary precaution to prevent them from becoming a risky substitute for insured bank deposits, thereby allowing stablecoins to evolve as a payments innovation rather than a threat to traditional banking. This debate, which has been ongoing and was partially addressed in the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act last year, has effectively derailed Senate legislation for months.
Despite predictions that the Clarity Act could receive a necessary hearing in the Senate Banking Committee by the end of the month, no session has been scheduled. The core issue revolves around the potential for depositors to leave banks in favor of higher stablecoin yields, prompting lawmakers to propose a compromise that would ban yield on stablecoin holdings resembling deposit accounts and only permit rewards for activity. However, banks have not endorsed this compromise. The prolonged debate complicates the passage of the Clarity Act through the Senate, with crypto insiders and bank representatives holding differing views.
The bankers' latest argument suggests that without intervention, stablecoin markets could rapidly expand from $300 million to $2 trillion, with yield becoming a significant factor that accelerates the migration out of bank deposits. Moreover, leading stablecoin issuers would likely deposit their reserves in larger banks, bypassing community banks, according to the ABA.