The US banking industry has been dealt several blows in its fight against stablecoin yield and rewards recently, but the fight is not over yet.
Over the last nine months, bank trade groups have railed for stricter guidelines on stablecoin yield, while crypto lobbyists have pressed for more permissive legislation. That conflict has come to a head recently with the unveiling of the CLARITY Act wording earlier this month, which permits stablecoin issuers to offer rewards. Now the bill is moving forward, set for markup in the Senate Banking Committee on May 14.
While offering yield was prohibited in the GENIUS Act, banks have been rallying for Congress to close what they see as a loophole: stablecoin issuers can offer customers benefits in the form of rewards. The banking industry is fearful that rewards could result in trillions in deposit flight.
"If these stablecoins take off and become like a default Internet dollar, deposit outflows could be much larger and more persistent than they were forecasting," referring to a recent report from the White House, Morningstar Vice President of North American Financial Institution Ratings Maureen Levelis said. "A high-yield stablecoin could maybe accelerate a whole deposit outflow into a shadow banking structure, but that's kind of a doomsday scenario."
Some Senate Banking Committee members believe the CLARITY Act version making its way through the Senate is a compromise with the banking industry.
"[Sen. Angela Alsobrooks (D-Md.)] and I have worked on a bipartisan basis with all stakeholders to address the banking industry's concerns about deposit flight. They have had a seat at the table and have been directly sharing their feedback and ideas for months to inform the final product," Sen. Thom Tillis (R-NC) wrote in an X post May 4. "Our compromise also allows crypto companies to offer other forms of customer rewards."
But the banking industry's fight is not over yet, as the bill still has several hurdles to clear after the Senate Banking Committee vote, including a full Senate vote, a House Financial Services Committee vote, and then a full House vote. If the House's version differs from the Senate's, the two chambers would have to reconcile the differences through additional committee meetings and votes.
Washington policy analysts do not think passage is guaranteed.
Capital Alpha Partners Managing Partner Ian Katz thinks the bill has a 40% to 50% chance of becoming law. Stifel's Chief Washington Policy Strategist Brian Gardner put his odds at 40% for passage in 2026, with the Senate Banking Committee's vote providing a clear line of sight for its prospects.
"If the bill passes the committee on a party-line vote, then the bill's prospects will be weak. If one or two Democrats cross the aisle and support the bill, then it would have a fighting chance of passing this year," he wrote.
Pushing for clarity
Banking industry groups feel the current CLARITY Act wording does not go far enough to clarify that yield is prohibited and "creates significant opportunity for easy avoidance of this prohibition altogether," a coalition of six bank trade groups, including the American Bankers Association and Independent Community Bankers of America, wrote in a May 8 letter.
The industry is also calling for Congress to ban considerations, rewards, or benefits on stablecoin balances, durations and tenure, saying it incentivizes customers to hold and grow their stablecoin balances.
"Removing this provision aligns with our shared objective to not incentivize the idle holding of payment stablecoins for extended periods of time. Retaining this section would negate the goals of the up-front prohibition (to deter deposit flight) while tying rewards directly to how much and for how long customers hold payment stablecoins in wallets or exchanges," the trade groups wrote.
What's at stake
In underlining the potential fallout of stablecoin yield, the trade groups cited research by Applied Micro-Economist at Legal Economics LLC Andrew Nigrinis, who projected yield-bearing stablecoin-related deposit flight could reduce lending to consumers, small businesses and agriculture by 20% or more.
Deposit shrinkage has been ballparked by industry stakeholders at anywhere from $270 billion on the low end, stretching to $4 trillion on the high end.
"They're a little scattershot, right? Like you're getting like everything from $500 billion to like $4 trillion," Nigrinis said in an interview with Market Intelligence. "There's a lot of uncertainty because we've never had anything like stablecoins before."
While stablecoin is billed as a payment mechanism, once it produces yield, it becomes a "deposit substitute," he said. And while a percentage of those stablecoins could return to the banking system, it has the potential to change long-term lending support at smaller institutions that rely on local, core deposits, he said.
Conversely, others believe barring yield and rewards would be anticompetitive, arguing that banks would be less inclined to offer competitive deposit rates.
