The American Bankers Association (ABA), the Independent Community Bankers of America, and 76 other state-level industry associations have sent a collective letter to the Senate demanding revisions to Section 404 of the CLARITY Act. The document, dated July 13, is addressed to Majority and Minority Leaders John Thune and Chuck Schumer. This is not merely a recommendation — it is the consolidated position of virtually the entire U.S. banking sector, which sees the current version as a direct threat to its business model.

Section 404, as a reminder, is designed to regulate the yield on stablecoins. In its current version, it prohibits issuers from paying rewards or accruing interest similar to bank deposits simply for holding funds. Only incentives tied to activity — such as executing transactions — are permitted. However, bankers argue that the section's wording is so narrow that it creates loopholes to circumvent the ban, and the ban on "interest-bearing deposits" is internally contradictory.

What exactly are the banks seeking?

The associations' proposals are extremely specific. They demand:

  • Remove the word "solely" from subsection (1)(A) so the prohibition is not absolute.
  • Eliminate the phrases "on the balance sheet of a payment stablecoin" and "on an interest-bearing deposit in a bank" from subsection (1)(B).
  • Replace the criterion "economically or functionally equivalent" with the standard "substantially similar" throughout Section 404.
  • Completely delete subsection (3)(B).

In essence, bankers are asking lawmakers not to create an artificial construct that allows stablecoins to disguise yield as "incentives" while banks lose their competitive edge. They warn that the current version encourages the creation of schemes that would effectively replace bank deposits, even though Congress initially stated that stablecoins are a payment tool, not a savings vehicle.

The real threat of deposit outflows

The main argument of the banking lobby is the risk of deposit outflows from local banks. And these are not empty words. Fewer deposits mean less funding for mortgages, small business loans, and agricultural lending. Bank lending is the foundation of the local economy. If stablecoins begin offering yields comparable to deposits, but without FDIC insurance and with greater flexibility, capital will inevitably flow into the digital space.

Earlier, five leading U.S. banking lobbies took a similar stance. The new document meticulously examines the critical points that bankers believe need to be fixed. Notably, the CLARITY Act is supported by both the Donald Trump administration and the federal law enforcement association NOBLE — despite sharp disputes over Section 404 and Section 604 (regarding developer protection and ethical standards).

The Senate has very little time left before the August recess. Whether lawmakers will manage to align positions on stablecoins, developers, and ethics remains a big question.

Expert opinion: The banking lobby in the U.S. is one of the most powerful political tools. The fact that 78 associations have united in a single front indicates that Section 404 in its current form indeed poses risks to traditional banking. However, I believe a compromise will be reached: stablecoins will likely be allowed limited yield, but with strict liquidity and disclosure requirements. A complete ban on interest is too blunt an instrument for such a complex market.