Banks Warn of Loopholes in Clarity Act Stablecoin Proposal

A group of six major US banking trade groups has written a letter to the Senate Banking Committee expressing concerns about the proposed language in the Clarity Act. The coalition argues that the current draft contains loopholes that would allow stablecoin companies to evade prohibitions on yield, which could disrupt the traditional banking industry.

The banks' statement comes as senators prepare for a long-delayed committee vote on the Clarity Act. The compromise language proposed by Senators Thom Tillis and Angela Alsobrooks last week would ban direct yield on stablecoins but still allow some rewards tied to account balances.

However, the banking trade groups argue that this exception is overbroad and could be exploited by crypto companies to offer rewards that are 'economically or functionally equivalent' to interest or yield on a bank deposit. They are asking for changes to reword the stablecoin yield language to prohibit payments 'substantially similar' to yield, rather than just those that are 'economically or functionally equivalent'.