The American Bankers Association (ABA), the Independent Community Bankers of America (ICBA), and 76 other state industry associations sent a collective letter to the Senate demanding revisions to Section 404 of the CLARITY Act. The document is dated July 13 and addressed to Senate Majority and Minority Leaders John Thune and Chuck Schumer.

Section 404 is intended to regulate the yield on stablecoins. In its current version, it prohibits issuers from paying rewards solely for holding payment stablecoins or accruing income similar to bank deposits. Only incentives tied to activity—such as conducting transactions or using the platform—are permitted. However, the banking community considers this wording overly strict and potentially vulnerable to circumvention.

What exactly are bankers seeking?

In the letter, the associations propose four key changes:

  • Remove the word "solely" from subsection (1)(A) so that the ban does not apply to combined incentives.
  • Exclude the phrases "on the balance of a payment stablecoin" and "on an interest-bearing bank deposit" from subsection (1)(B).
  • Replace the criterion "economically or functionally equivalent" with the standard "substantially similar" throughout Section 404.
  • Completely delete subsection (3)(B), which, according to bankers, contradicts the adjacent prohibition and creates loopholes for bad actors.

Bankers emphasize that the current version of Section 404 not only fails to close opportunities for circumventing the law but may also encourage the creation of schemes that effectively replace bank deposits. They remind that Congress originally positioned payment stablecoins as a settlement tool, not as a store of value.

Real threat of deposit outflows

Particular concern is raised by the risk of a massive outflow of deposits from local banks. The fewer deposits remain in regional credit institutions, the less funds are available for mortgages, support for small businesses, and farmers. Bank lending is the main driver of local economic development, and its weakening will hit the real economy.

Earlier, five of the largest U.S. banking lobbies had already expressed a similar position. The new letter details critical points that need to be corrected before the law is passed.

Recall that the CLARITY Act has not yet been adopted largely due to disagreements on three key issues: stablecoin yield, developer protection (Section 604), and ethics standards. President Donald Trump urged senators to speed up, and support for the bill has already been expressed by the NOBLE association and federal law enforcement, despite heated debates.

My analysis: The banking lobby demonstrates high organization and a clear understanding of which specific wordings could undermine their business model. Interestingly, they are not opposed to stablecoins as such—they want to retain their role as a "gateway" for fiat flows. If the Senate fails to agree on amendments before the August recess, the adoption of CLARITY could be delayed for several more months, leaving the U.S. stablecoin market without clear regulation.