The American Bankers Association (ABA), together with 77 other state industry associations, sent a collective letter to the U.S. Senate demanding substantial revisions to the CLARITY Act. The key sticking point is Section 404, which regulates stablecoin yields. The document, dated July 13, is addressed to Majority and Minority Leaders John Thune and Chuck Schumer.

What's Wrong with Section 404: The Battle Over Yields

Section 404 in its current form prohibits issuers of payment stablecoins from paying rewards analogous to bank interest on deposits. Only incentives tied to user activity—such as for transactions or platform usage—are permitted. However, bankers see this provision not just as a restriction, but as a potential loophole for circumventing the law.

In their letter, the associations propose four specific amendments:

  • Remove the word "solely" from subsection (1)(A) to avoid creating a narrow interpretation.
  • Delete the phrases "on the balance of the payment stablecoin" and "by reference to a bank’s interest-bearing deposit" from subsection (1)(B), which they argue are too closely tied to the banking model.
  • Replace the criterion "economically or functionally equivalent" with "substantially similar" throughout the section to provide greater flexibility in enforcement.
  • Completely remove subsection (3)(B), which creates an internal contradiction with the adjacent prohibition.

Bankers fear that the current wording would allow unscrupulous issuers to disguise interest income as "incentives," bypassing the direct ban. In their view, this would create unfair competition for traditional deposits.

Threat to the Deposit Base: An Argument Heard in Washington

The main message of the letter is not just technical amendments, but a systemic risk. The associations emphasize: the more funds flow from bank deposits into yield-bearing stablecoins, the less money remains for mortgages, small business loans, and agricultural lending. And this is the foundation of the local economy.

"The ambiguity of the draft could encourage stablecoin schemes that effectively replace bank deposits, even though Congress initially stated: payment stablecoins are a settlement tool, not a store of value," the statement reads.

Previously, five of the largest U.S. banking lobbies had taken a similar stance, but the new letter details the grievances. Notably, the CLARITY Act is supported by both law enforcement agencies (the FLEOA association) and the Trump administration, which urged senators to expedite the process. However, consensus on stablecoin yields and Section 604 (developer protections and ethical standards) has yet to be reached.

Analyst's Comment: The battle over Section 404 is a classic conflict between innovation and the established financial system. Banks are rightly concerned about deposit outflows, but their proposal of "substantially similar" instead of "economically equivalent" is an attempt to maintain control without killing the market. With only a few weeks left before the Senate's August recess, without a compromise, the law risks stalling again. The stablecoin market awaits clarity, but bankers are clearly not ready to give up their positions without a fight.