78 Banking Groups Push Senate to Rewrite CLARITY Act Section 404

The American Bankers Association, the Independent Community Bankers of America, and 76 state associations sent Senate leaders a set of targeted revisions to the CLARITY Act, which is pending before the Senate.

The July 13 letter went to Majority Leader John Thune and Minority Leader Chuck Schumer. It focuses on Section 404.

The Targeted Edits Banks Want in The CLARITY Act

Section 404 of the CLARITY Act targets stablecoin yield. It bars covered parties from paying returns solely for holding payment stablecoins or for providing a yield equivalent to bank deposit interest. It preserves activity-based rewards tied to transactions or platform use. 

The signers propose narrow changes to the section, plus a printed markup of the amended text. They want lawmakers to:

• Remove the word “solely” from subsection (1)(A).
• Cut the phrases “on a payment stablecoin balance” and “on an interest-bearing bank deposit” from (1)(B).
• Replace the “economically or functionally equivalent” test with a “substantially similar” standard, wherever it appears in Section 404.
• Delete subsection (3)(B)in its entirety.

The bankers say these would stop firms from engineering incentives that dodge the ban. They also argue that the rewards subsection works against the prohibition it sits beside.

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Banks Warn of Deposit Flight Risk

The groups said that they back responsible innovation and a well-regulated digital asset marketplace but want firmer guardrails. In the letter, the bankers expressed concerns regarding the current language in Section 404.

“In particular, we remain concerned that ambiguities within the bill could encourage stablecoin arrangements to effectively function as substitutes for deposits, despite Congress’s longstanding and clearly stated intent that payment stablecoins should serve as transaction tools rather than store-of-value products,” the association said.

The banking groups say the risk of deposit flight is concrete, not hypothetical. When local deposits shrink, so does the money banks recycle into their own towns.

Those deposits fund home loans, small-business credit, and financing for farmers. The letter frames that lending is the engine behind local growth.

Five US banking lobbies made similar arguments in an earlier letter this year. This round sharpens the specific statutory fixes.

The stablecoin yield is one of three key disputes stalling the bill. Lawmakers remain split over Section 604 developer protections and ethics rules.

President Trump has pushed senators to move quickly. At the same time, two groups, NOBLE and a federal law enforcement association, have backed the bill despite the open fights.

The Senate faces a narrow window before the August recess. Whether leaders can settle the stablecoin, developer, and ethics disputes in that window remains unclear.

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