US banking groups are rallying arewardst stablecoin rewards programmes after the Senate failed to pass the CLARITY Act on September 15. The cloture motion failed 49-50, eleven short of the 60 needed. This leaves the proposed limits on stablecoin yields stalled for now. Banks argue that rewards linked to holding stablecoins can work much like interest paid on deposits. which could push customers to move funds away from financial institutions. They warn that a shift in deposits could decrease the money available for mortgages, loans and small business credit. With the bill stalled, banking groups are now pushing for stricter rules around stablecoin rewards.
Why Banks Say Stablecoin Rewards Work Like Deposit Interest
The dispute turns on whether yield offered to stablecoin holders can compete with conventional bank deposits. Banking groups state that incentives tied to the amount of stablecoins held or the length of time they are held can resemble deposit interest. This can create a threat to the funding model used by community banks. Banks depend on deposits to support lending activity, including loans, mortgages, and small business credits. Their issue is that if consumers can receive rewards for keeping funds in stablecoins, some deposits could shift from banks to crypto platforms.
The CLARITY Act attempted to solve this issue through constraints on stablecoin rewards. The final Senate text sought to ban issuer-paid interest on payment stablecoins that mimics bank deposit interest. Similarly, the proposition would have allowed third parties, including exchanges, to hand out certain forms of yield and permitted some transaction-based rewards. The legislation also included an 18-month circuit breaker that would let the Treasury Secretary restrict stablecoin rewards if they led to deposit outflows from financial institutions. The groups called the circuit breaker “not a safeguard at all”.
What The Eight Banking Groups Want Changed In Section 10404
Eight banking groups, including the American Bankers Association, the Bank Policy Institute and the Independent Community Bankers of America, wrote to Senate leaders John Thune and Chuck Schumer on September 14 to tighten the stablecoin reward provisions before the September 15 vote. Their concerns remain after the legislation failed to move ahead. Banking groups wanted the word solely removed from the prohibition on certain yield and are calling for the “economically or functionally equivalent” test in Section 10404 to be replaced with a “substantially similar” test.
They also want language permitting rewards linked to stablecoin holders’ balance, duration, or tenure to be removed. Their position is that these types of yield could still mimic the economic function of deposit interest, even if they are structured as rewards. The debate therefore goes beyond the terminology. At issue is whether regulators should focus on how a gain is structured or whether it creates an economic result similar to the deposit interest.
Why Scott Bessent Defends The 18-Month Circuit Breaker
The Senate’s failure to advance the CLARITY Act means the proposed changes to stablecoin rewards are not taking effect for now. The bill needed 60 votes to overcome the procedural hurdle, and the motion failed 49-50, leaving the legislation stalled. White House crypto adviser Patrick Witt and others argued the GENIUS Act framework still governs. That framework prohibits direct interest payments from stablecoin issuers but allows third parties to offer yield. As a result, crypto companies can continue operating rewards programmes that banks consider similar to deposit products.
For banks, this is a big problem with the existing framework. They argue that waiting for deposit outflows to become substantial to trigger regulatory action is not an effective guardrail. The reported 18-month circuit breaker has drawn scrutiny from banking lobbyists. Their argument is that the treasury tool would only become useful after substantial deposit movement. This makes it a reactive measure rather than a preventive constraint. The dispute reflects a broader business model conflict between conventional banking and the increasingly stablecoin sector. Crypto platforms can use rewards and other incentives to appeal to users and capital.
Banks also seek rules that prevent stablecoin products from mimicking the economic benefits of deposit accounts. The CLARITY Act failure leaves the competition ambiguous. Crypto platforms can continue offering yield under the current framework, while banking groups are expected to keep pressing Congress and regulators for stricter rules.
For policymakers, one of the core questions in any future version of the legislation will be whether to adopt the banking industry’s proposed “substantially similar” test. Another will be whether rewards based on balance, duration or tenure should be barred outright.
The outcome could influence how stablecoin companies restructure rewards programmes and how closely those products can be similar to deposit interest. It could also affect the relationship between stablecoin growth and the deposit base that banks use to support lending.
For now, the Senate vote has left the present framework in place. Banking groups say they will retaliate to make strict rules, while the proposed CLARITY Act provisions on stablecoin rewards remain halted.
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