Bankers Urge Senate to Shut Down Interest Evasion on Stablecoins

A coalition of banking associations urged the Senate to amend the Digital Asset Market Clarity Act, which would establish a federal regulatory framework for digital assets, saying its prohibition on stablecoin interest and yield could be evaded as drafted.

In a joint letter to Senate leadership, the American Bankers Association, the Independent Community Bankers of America, and 77 state bankers associations said Section 10404 of the bill, which is pending before the Senate, does not sufficiently distinguish payment stablecoins from store-of-value products. The associations argued that without stronger safeguards, payment stablecoins could increasingly function as substitutes for traditional bank deposits, leading to deposit flight away from community financial institutions.

The associations proposed specific revisions to Section 10404(c)(1) of the bill. They said the changes would ensure the prohibition on interest and yield cannot be evaded through creatively structured incentives.

They asked the Senate to strike Subsection 10404(3)(B) in its entirety, a provision that would allow rewards calculated by reference to the balance, duration, or tenure of stablecoin holdings.

The associations warned that unchecked stablecoin yield incentives could divert deposits that community banks rely on to fund mortgage lending, small-business financing, and agricultural credit.