Banks Sound the Alarm Over Stablecoins

A group of 134 representatives from US banks has called for tighter stablecoin regulations. In a letter, they appealed to Senate Majority Leader John Thune, a Republican from South Dakota, and Senate Minority Leader Charles Schumer, a Democrat from New York.

The bankers are seeking an amendment to Section 10404 of the CLARITY Act. The provision restricts the payment of interest and other returns on payment stablecoins. However, they argue that its current wording leaves a loophole allowing companies to offer rewards, bonuses, and similar incentives for holding such assets.

The signatories warn that stablecoins offering interest-like benefits could draw hundreds of billions of dollars away from banks. This would weaken the deposit base used to fund loans for families, small businesses, farmers, and local employers.

Deposits are also an important source of funding for mortgages, business growth, farming operations, and investment in local communities. Bankers fear that incentives based on the amount of stablecoins held or the length of time they are kept could begin to function like interest-bearing banking products—without being subject to the same regulations as insured banks.

The letter’s authors want the Senate to incorporate amendments proposed by state banking associations before the CLARITY Act is passed in its final form. They argue that this would allow stablecoins to develop as a means of payment without undermining the funding available for local lending.

The dispute centres on the role stablecoins should play in the US financial system. Banks believe they should primarily be used for payments rather than as a long-term store of value. The final version of the legislation will determine the rules governing these assets in the United States.

Critics of the banking industry see the issue differently. In their view, financial institutions are mainly unhappy that cryptocurrency companies offer customers higher returns on their funds. Rather than raising interest rates on their own savings accounts and deposits, banks are accused of trying to use regulation to limit competition.