The crypto industry’s main effort in US politics – the Digital Asset Market Clarity Act – has remained held up on a point about stablecoin dividends that has little to do with the bill’s central goal of regulating US crypto markets. It remains an issue as bankers fired the latest salvo to claim the industry’s rewards programs are a danger to bank deposits.
In response to a recent report by White House economists that banks have little to fear from the rise of stablecoins, the American Bankers Association claims that the Council of Economic Advisers analyzed the wrong scenario. Instead of looking at what would happen if Congress were to impose a ban on stablecoin dividends now, it should have looked at what would happen if such returns from stablecoins were allowed.
“The CEA paper minimizes core risk by starting from the wrong question,” according to ABA economists. “There is already ample evidence and analysis to show that a ban on returns for payment stablecoins is a prudent hedge. Such a policy will allow stablecoins to mature as a payment innovation rather than as a financially risky substitute for insured bank deposits.”
This conflict on an issue that was already partially addressed in last year’s Guiding and Establishing National Innovation for American Stack Coins (GENIUS) Act actually derailed Senate legislation for months. Although the Clarity Act’s legislative advocates have predicted it could get its required hearing in the Senate Banking Committee by the end of this month, that session has not yet been scheduled.
Senators from both parties had been moved by the banks’ arguments that their depositors (who fund their lending) would leave them in droves to chase stablecoin dividends that exceed what the banks offer in interest. So lawmakers hashed out a compromise that would ban returns on stablecoin holdings that look like deposit accounts and only allow reward programs for activity that look like credit card rewards. But the banks have not come out and cheered about it.
Sen. Cynthia Lummis, the Wyoming Republican who chairs the Banking Committee’s Subcommittee on Digital Assets, wrote Monday on social media X, “America needs clarity.” She has kept a steady stream of posts going on the topic and said over the weekend that it is “now or never” for the bill.
The longer this debate drags on, the harder it will be to get clarity through the Senate process that could lead to a floor vote. While crypto insiders have been relatively vocal about the clash, bank representatives have been more reserved.
The banks’ latest arguments suggest that the absence of intervention on stablecoin yields would now allow stablecoin markets to scale rapidly from $300 million to as much as $2 trillion.
“In a larger market, dividends are not a minor product feature; they are the mechanism that would accelerate migration out of bank deposits,” they argue.
And even if leading stablecoin issuers would deposit reserves in banks, they would likely go to larger institutions and not community banks, according to the ABA’s thinking.
Read more: Clarity Act Returns to US Senate, Bank Earnings: Crypto Week Ahead
