Eight major banking institutions in the US have warned that the final draft of the CLARITY Act, awaiting consideration in the Senate, does not adequately regulate stablecoins. The banking gro
Eight major banking institutions in the US have warned that the final draft of the CLARITY Act, awaiting consideration in the Senate, does not adequately regulate stablecoins. The banking groups argued that the “circuit breaker” mechanism, intended to be triggered if deposit outflows reach a certain level, is not a true safety measure.
According to Fox Business reporter Eleanor Terrett, eight organizations, including the Bank Policy Institute, the American Bankers Association, the Consumer Bankers Association, the Financial Services Forum, and the Independent Community Bankers of America, addressed Senate leaders John Thune and Chuck Schumer in a letter released today.
Organizations have argued that offering incentives such as interest or yield on payment-oriented stablecoins could lead to significant deposit outflows from banks, reducing their lending capacity. According to banking groups, community banks and deposit-based lenders may be particularly hard hit.
The letter also sharply criticized the “circuit breaker” mechanism designed to prevent deposit outflows in the current text of the CLARITY Act. The groups pointed out that the mechanism would only be activated “after a significant amount of deposit outflow has occurred,” arguing that this could not be considered a preventative safety measure.
Banks also argued that stablecoin providers or related companies could circumvent the ban by using different reward and incentive models instead of paying interest directly. Therefore, they requested that the wording in the bill be broadened and loopholes that could allow interest-like payments on stablecoin balances be closed.
The organizations’ proposals included explicitly prohibiting all direct or indirect interest and returns associated with holding stablecoins, removing certain restrictive phrases from the current text, and banning incentives that are economically similar to bank deposit interest rates.
Banking groups emphasized their support for the creation of a permanent and comprehensive regulatory framework for the digital asset market, arguing that the CLARITY Act, in its current form, does not provide sufficient protection to prevent stablecoins from withdrawing deposits from the banking system.
*This is not investment advice.
Continue Reading: 8 Major Banking Institutions Issue Strong Statement Against Clarity Act, the Bullish Cryptocurrency Act
