The American Bankers Association (ABA) and Independent Community Bankers of America (ICBA), joined by 76 state associations, sent Senate leaders a letter on July 13, 2026, urging changes to the CLARITY Act’s Section 404 stablecoin interest ban before a Senate floor vote.
Key Takeaways
- The American Bankers Association, ICBA, and 76 state associations pressed Senate leaders to tighten the CLARITY Act’s stablecoin yield ban.
- Banks want lawmakers to replace the bill’s “functional and economic equivalent” test with a “substantially similar” standard.
- The letter also asks Congress to remove the subsection that lets rewards be calculated by a stablecoin’s balance, duration, or tenure.
- ICBA estimates a weak yield ban could cost the industry $850 billion in lending after a $1.3 trillion drop in deposits.
- The CLARITY Act already passed the House 294-134 and cleared the Senate Banking Committee 15-9 ahead of a floor vote.
Trade Groups Press Senate on Stablecoin Yield
The CLARITY Act splits digital asset oversight between the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC), with Section 404 governing payment stablecoins. That split sits inside the same CFTC crypto regulation policy landscape reshaping how Washington treats digital assets.
The letter argues that ambiguities in Section 404 could let stablecoin arrangements effectively function as substitutes for deposits, despite Congress’s longstanding intent that payment stablecoins serve as transaction tools rather than store-of-value products. The same tension already shapes competition across Decentralized finance markets, where stablecoins function as base collateral for lending and trading.
the consequences of deposit flight are not theoretical, the letter states. Deposits gathered in the cities, towns, and rural communities banks serve are reinvested through mortgage lending, small business financing, and agricultural credit.
ABA represents the nation’s $26.1 trillion banking industry, which safeguards $20.5 trillion in deposits, extends $13.7 trillion in loans, and employs over 2 million people.
Just released – ABA, @ICBA join state associations in urging Senate to strengthen stablecoin yield provisions in Clarity Act: https://t.co/t9fYw7RqAL
— American Bankers Association (@ABABankers) July 13, 2026
The Precise Fix Banks Are Seeking
The associations want Congress to strike “solely” from clause (1)(A) and remove the phrases “on a payment stablecoin balance” and “on an interest-bearing bank deposit” from (1)(B) of Section 404’s interest and yield prohibition. They also want the bill’s “functional and economic equivalent” standard replaced with a “substantially similar” standard.
The swap matters because “functional and economic equivalent” invites a narrow, product-by-product comparison to a specific bank deposit that a stablecoin issuer can structure around. A “substantially similar” test asks a broader question that is harder to route around with clever reward design.
The letter separately asks lawmakers to remove Section 404 subsection (3)(B) in its entirety, the provision that lets digital asset service providers and their affiliates pay rewards calculated by reference to a stablecoin’s balance, duration, or tenure.
Why the Current Prohibition Contradicts Itself?
Interest payments are often calculated by reference to duration, balance, and tenure, the same terms the (3)(B) carve-out explicitly permits. The letter states plainly: this subsection appears contradictory to the initial prohibition.
The Senate Banking Committee’s current language bars stablecoin yield that is “economically or functionally equivalent” to interest on bank deposits, but ICBA has told lawmakers it falls short of a robust yield prohibition.
Both trade groups are making the same structural argument from different angles. Congress already answered the yield question once, in the prohibition itself, and a carve out keyed to balance, duration, and tenure reopens the door the ban was written to close.
Implications for Community Banking
ICBA’s economic analysis projects that failing to extend a strict yield prohibition could shrink community bank lending by $850 billion, driven by a $1.3 trillion reduction in industry deposits. That is the dollar figure behind the deposit flight warning: money that migrates from a local bank to a yield-bearing stablecoin does not fund next week’s mortgage or small-business loan.
The CLARITY Act already passed the House 294-134 and sits on the Senate Legislative Calendar, Calendar No. 423, after the Senate Banking, Housing, and Urban Affairs Committee reported it with amendments. That timing puts the banks’ rewrite in a narrow window, arriving as a bid to change specific statutory text before floor debate starts, not as an early-drafting suggestion.
Rep. J. French Hill sponsored the bill, formally titled the Digital Asset Market Clarity Act of 2025. Section 404 sits inside that market-structure framework as the one provision addressing what happens when a stablecoin starts to resemble a bank account, and the exchanges and other digital asset service providers.
CoinLaw’s Takeaway
This dispute centers on which financial product controls the deposit base that community banks depend on. A payment stablecoin that quietly pays a return competes directly with a savings account, and once depositors have an easy digital alternative that yields something, banks lose funding they have priced into decades of local lending. The four textual edits banks are requesting, backed by 76 state associations behind this letter, narrow how digital asset service providers can structure rewards, closing the specific route Section 404’s own carve-out currently leaves open.
The more interesting signal is the “substantially similar” test itself. A standard built on close functional mimicry of a bank product is easier to structure around than a broader similarity standard, which gives regulators more room to catch a reward program engineered to dodge the rule’s substance while keeping its form. Community banks appear to be treating this letter as one of the last unresolved fights in the CLARITY Act’s stablecoin language, arriving while the bill still sits on the Senate calendar rather than after a 2026 floor vote locks the text in.
