Banking Lobby Fights CLARITY Act Stablecoin Rules Ahead of Senate Markup

The Digital Asset Market Clarity Act (CLARITY Act), a sweeping bipartisan regulatory framework for digital assets, is facing fierce opposition from the banking lobby just days before a pivotal Senate markup scheduled for the week of May 11. The bill, which cleared the House in July 2025, aims to establish clear federal rules for digital assets, including stablecoins, but a contentious provision on yield-bearing stablecoins has become the focal point of debate.

Key US lawmakers, including Senate negotiators, are pushing to advance the bill to the president’s desk before July 4, despite strong resistance from banking trade groups. The Trump administration has signaled support for the legislation, further emboldening its proponents on Capitol Hill.

The Stablecoin Yield Dispute: A Battle Over Liquidity and Deposit Flight

The core of the conflict centers on Section 404 of the CLARITY Act, which seeks to prohibit the direct payment of yield and interest on stablecoins. However, a coalition of major banking trade groups—including the American Bankers Association, Bank Policy Institute, Consumer Bankers Association, Financial Services Forum, and Independent Community Bankers of America—has publicly rejected the drafted language, arguing it contains dangerous loopholes.

According to the coalition, the current text allows digital asset exchanges and intermediaries to distribute rewards tied to membership programs, even if they are not structured as traditional bank interest. The banking groups contend that this distinction is meaningless, as the practice still incentivizes the idle holding of stablecoins, which traditional banks rely on for financing community growth.

Internal research from the coalition estimates that the proliferation of yield-earning stablecoin alternatives could reduce available capital for consumer loans, small-business loans, and agricultural loans by up to 20%. The groups warn that this could trigger widespread capital flight from traditional banking systems.

While retail-facing megabanks and community lenders remain firmly opposed to the compromise, some financial institutions without large consumer deposit arms are cautiously warming to the Tillis-Alsobrooks framework, named after the senators leading the negotiations.

Senate Negotiators Push Back Against Banking Lobby Demands

Faced with mounting pressure from the banking sector, Senate negotiators are refusing to back down. Senator Thom Tillis, who spearheaded the stablecoin provision, defended the drafted language as a carefully balanced compromise that addresses deposit flight risks without stifling innovation.

"The banking industry was not blindsided by the text. Traditional financial stakeholders were engaged throughout the drafting process, and this language reflects a hard-fought agreement that protects both consumers and the broader financial system."

Tillis emphasized that the legislation does not create a "yield loophole" but instead clarifies existing rules to prevent regulatory arbitrage. The senator also highlighted that the compromise was designed to maintain stability in local lending markets while allowing for responsible innovation in digital assets.

As the markup date approaches, the outcome remains uncertain. Proponents of the CLARITY Act are projecting confidence, buoyed by bipartisan support in the House and anticipated backing from the Trump administration. However, the banking lobby’s aggressive pushback underscores the high stakes of the debate over stablecoin regulation in the US.