The American Bankers Association (ABA), the Independent Community Bankers of America (ICBA), and 76 other state-level industry associations have sent a collective letter to the U.S. Senate. The addressees are Majority and Minority Leaders John Thune and Chuck Schumer. The main focus of the document is the revision of Section 404 of the CLARITY Act, which is currently under consideration in the upper chamber of Congress.

What's Wrong with Section 404?

Section 404 is designed to regulate the yield on stablecoins. In its current version, it prohibits issuers from paying rewards for simply holding payment stablecoins or accruing income similar to bank deposits. Only incentives tied to user activity are allowed—for example, for conducting transactions or using the platform.

The banking lobby considers this approach flawed. In their letter, they propose four key changes:

  • Remove the word "solely" from subsection (1)(A).
  • Exclude the phrases "on the balance of a payment stablecoin" and "on an interest-bearing deposit in a bank" from (1)(B).
  • Replace the criterion "economically or functionally equivalent" with the standard "substantially similar" throughout the section.
  • Completely delete subsection (3)(B).

According to the signatories, the current wording creates loopholes to bypass the ban through additional incentives, and the clause on permitted incentives directly contradicts the adjacent prohibition. Simply put, the law in its current form is legally inconsistent and open to abuse.

The Real Threat: Deposit Outflow

Bankers warn that the ambiguity of Section 404 could trigger schemes where stablecoins effectively replace bank deposits. This would be a direct blow to the local economy. Deposits fuel mortgages, small business lending, and agricultural loans.

"Concerns remain: the ambiguities of the draft could encourage stablecoin schemes that effectively replace bank deposits, even though Congress initially stated that payment stablecoins should be used as a settlement tool, not as a store of value," the associations' statement reads.

This is not the first attempt by the banking lobby to influence CLARITY. Previously, five of the largest U.S. banking groups took a similar stance, but the new document is much more detailed in analyzing specific amendments.

Time Is Running Out

The issue of stablecoin yield remains one of the three main reasons the bill has not yet been passed. There is also no consensus on Section 604, which addresses developer protection and ethical standards. Donald Trump has urged senators to speed up, and the bill has also been supported by NOBLE and the Federal Law Enforcement Officers Association—despite sharp disputes surrounding the project.

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

Expert Opinion: The banking lobby in the U.S. is one of the most influential forces in Washington. The fact that 78 associations are united in a common front significantly increases the chances of revising Section 404. However, the compromise between protecting the traditional banking system and fostering innovation in digital assets remains extremely fragile. There is almost no time left to achieve it.