US Banks Demand Limits on Stablecoin Rewards: Early Intervention Against Deposit Flight

Eight banking groups in the US have called on the Senate to impose stricter limits on stablecoin rewards.

Groups including the American Bankers Association, the Bank Policy Institute, and the Independent Community Bankers of America sent a joint letter ahead of the Senate’s CLARITY Act vote. The letter was delivered to Senate Majority Leader John Thune and Democratic Leader Chuck Schumer.

The banks argued that the current version of the bill leaves room for crypto companies to offer rewards similar to bank deposit interest. Stating that such programs could encourage customers to withdraw their money from banks and move it into stablecoins, the groups requested the removal of provisions that allow rewards to be tied to the amount of stablecoin held by the customer and the duration the asset is held.

Federal laws limit stablecoin issuers from paying direct yields. However, there are no clear rules regarding rewards that can be offered through exchanges and other intermediaries. Banking groups are demanding that this loophole be closed and clearer limits be set for stablecoin rewards.

Banks Want the Circuit Breaker to Trigger Earlier

Another provision the banks objected to was the deposit flight circuit breaker, which would allow regulators to intervene if stablecoins lead to significant losses in bank deposits. The groups argued that the mechanism would not provide adequate protection if it only triggers after a large amount of deposit loss has occurred.

The Independent Community Bankers of America stated in a separate letter that the proposal could cover the 18-month period following the law’s enactment. The organization requested intervention if regulators determine that transfers to stablecoins significantly impact the deposits of community banks with assets under $10 billion.

Treasury Secretary Scott Bessent defended the approach in the bill in a statement on X. Bessent said that the Treasury is granted additional authority to intervene if stablecoins harm community banks. Stating that the administration aims to support digital asset technology while protecting community banks, Bessent expressed that the bill will strengthen the US position in the new technology race.