The debate over the Digital Asset Market Clarity Act has stalled due to disagreements on stablecoin yields, with bankers warning that these yields could lure depositors away from traditional banks. In response to a White House report downplaying the risks, the American Bankers Association asserts that the analysis started with the wrong premise. Instead of examining the effects of banning stablecoin yields, it should have considered the consequences of allowing such yields to continue. The bankers argue that prohibiting yield on payment stablecoins is a necessary precaution to prevent stablecoins from becoming a risky substitute for insured bank deposits.
This dispute has effectively derailed Senate legislation for months, despite predictions that the bill could be heard in the Senate Banking Committee by the end of the month. A compromise was proposed to ban yield on stablecoin holdings that resemble deposit accounts and only permit rewards programs for activity, similar to credit-card rewards. However, the banking industry has not endorsed this compromise. As the debate continues, the likelihood of passing the Clarity Act through the Senate process diminishes.
The bankers warn that without intervention, the stablecoin market could rapidly expand from $300 million to $2 trillion, with yield becoming a key driver of migration out of bank deposits. According to the American Bankers Association, leading stablecoin issuers would likely deposit their reserves in larger banks, bypassing community banks.