76 Banking Associations Panicked: This Stablecoin Feature Could Shift Deposits to Crypto

Banking associations in the U.S. have made a critical call to the Senate to tighten stablecoin regulations under the Clarity Act and prevent a potential deposit flight from traditional banks.

76 state banking associations, including the American Bankers Association (ABA) and the Independent Community Bankers of America (ICBA), are demanding targeted changes to the stablecoin provisions in the bill. In a joint letter sent to Senate leaders, they warned that certain ambiguous language in the current draft could pave the way for stablecoins to be used as an alternative to bank deposits. The banking sector argues that this situation could cause funds, particularly in local community banks, to shift into the crypto ecosystem.

At the center of the lobby’s focus is a provision of the bill known as Section 404, which prohibits crypto firms from providing interest or yield on stablecoins. Although the current text directly bans interest payments, it leaves the door open for transaction-based rewards. Banks state that this ambiguity will encourage users to hold stablecoins for long periods to earn yields rather than using them purely as a payment tool.

Interest and Reward Ambiguity in Stablecoin Regulation

Banking associations want stablecoins to remain strictly a means of payment and not evolve into investment products. If these assets offer interest-like incentives, it is predicted that deposits in community banks will decrease, and as a result, services that support the local economy—such as mortgages and small business financing—will suffer. For this reason, they are calling for a total ban on rewards tied to stablecoin balances or holding periods.

As the regulatory process continues in the legislative corridors of Washington, the heart of the U.S. Congress, the bill must also be submitted for House approval if it passes the Senate. On the other hand, it remains uncertain whether ethical restrictions on federal officials profiting from digital assets will be added to the bill. Industry representatives emphasize that the balance of the financial system could be disrupted if clear rules are not established.