Clarity Act Delay: Why Banks' Fight Against Stablecoin Yields May Be Futile

The Clarity Act, a key piece of legislation aimed at regulating stablecoins, is stalling in Washington. Yet industry insiders claim the outcome has already been determined. Zachary Townsend, CEO of crypto insurance firm Meanwhile, dismisses traditional banks' lobbying efforts against yield-bearing stablecoins as a "sideshow."

"Every incumbent fights a better financial product. Stalling the Clarity Act doesn't change where this ends. They lobby, they delay, but they lose the market anyway."

Townsend’s perspective comes as the Senate Banking Committee failed to schedule an April markup for the Clarity Act, pushing discussions into May. Three major sticking points remain: decentralization provisions, securing Republican votes, and the issue of stablecoin yields.

Despite the delay, President Donald Trump has publicly supported the bill. Speaking to memecoin holders at Mar-a-Lago over the weekend, Trump stated he wants the Clarity Act passed and would sign it immediately.

"The banks are fighting a sideshow while the real deposit displacement is already underway," Townsend said.

The Core Issue: Stablecoin Interest and Bank Deposits

At the heart of the debate is the question of whether stablecoins should be allowed to offer interest or yield to holders. The Genius Act, signed into law by Trump in July 2025, requires stablecoin issuers to maintain one-to-one reserves for outstanding tokens. These reserves can include US dollars, federal reserve notes, insured deposits, short-term Treasuries, and money market funds.

Crucially, the Genius Act prohibits stablecoin issuers from offering direct interest or yield to holders. However, it does not explicitly block affiliates or third parties from structuring yield products around stablecoins. Some versions of the Clarity Act aim to close this loophole entirely.

Banking groups argue that allowing stablecoins to offer competitive returns could drain deposits from traditional bank accounts. Since stablecoin reserves are fully backed rather than fractionally lent, critics warn this could reduce banks' lending capacity.

White House Analysis Reveals Minimal Impact on Bank Lending

A White House economic analysis, published in early April, challenges these concerns. Using a baseline model, the analysis found that eliminating stablecoin yield would increase bank lending by just $2.1 billion—roughly 0.02% of total lending. The net welfare cost of this change would be $800 million.

Under this model, large banks account for 76% of the modest lending increase, contributing $1.6 billion. Community banks would see an additional $500 million in lending, representing a 0.026% increase in their total lending.

Even under extreme "worst-case" assumptions—including stablecoins growing sixfold as a share of deposits and reserves locked entirely in non-lendable cash—the model projects a 4.4% increase in aggregate bank loans. In this scenario, community bank lending would rise by 6.7%.

Structural Shift: Deposit Migration to Stablecoins

Townsend views the debate as largely symbolic. He argues that deposit migration from traditional banks to stablecoins is already underway and structural in nature. In January 2025, Standard Chartered forecasted that banks could lose up to $1.5 trillion in deposits to stablecoins by 2028, regardless of yield regulations.

Legislative Clock Ticking: Can the Clarity Act Pass Before Midterms?

The legislative calendar is tightening. Republican Senator Thom Tillis has requested additional time to consult with banks on the yield issue and release draft text. If the bill is not passed before the November 2026 midterm elections, its enactment could be delayed for years, according to Alex Thorn, head of research at Galaxy Digital.

"If the markup slips past mid-May, the probability of enactment in 2026 will drop sharply," Thorn warned in a note shared with DL News. "In our view, the odds of Clarity being signed into law in 2026 are roughly 50-50, and possibly lower."

Meanwhile, prediction market platform Polymarket gives the Clarity Act a 47% chance of passage.