78 U.S. banking associations demand a revision of Section 404 of the CLARITY bill: stakes are rising
The American Bankers Association (ABA), the Independent Community Bankers of America (ICBA), and 76 other industry groups have sent a collective letter to the Senate demanding revisions to Section 404 of the CLARITY Act. This document, currently under Senate review, has raised serious concerns in the banking sector.
What is the essence of the complaints against Section 404?
Section 404 aims to regulate the yield on stablecoins. In its current version, it prohibits issuers from paying rewards or accruing income similar to bank deposits for simply holding funds. Only incentives tied to user activity—such as conducting transactions—are permitted.
Bankers believe this wording creates loopholes and contradictions. They propose specific amendments:
- 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 "substantially similar" throughout the section.
- Delete subsection (3)(B) entirely.
According to the signatories, the current version of Section 404 allows companies to circumvent the ban on paying interest through additional incentives, directly contradicting the adjacent prohibition clause. This is not just a bureaucratic nitpick—it is a fundamental conflict at the very core of the bill.
Banks warn: deposit outflows are a real threat
In their appeal, the banking groups emphasize that they support "responsible innovation and a transparent digital asset market" but demand stronger regulation. The main concern is that the bill's ambiguity could encourage the creation of stablecoin schemes that effectively replace bank deposits.
"The ambiguities of the project could encourage stablecoin schemes that may 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 association's statement reads.
Bankers remind that deposits are the foundation for mortgage lending, small business support, and farming. The fewer deposits in local banks, the less money available for real economic development. The threat of deposit outflows into stablecoins, in their view, is absolutely real and requires immediate adjustments.
This is already the second recent appeal from major banking lobbies on this issue. However, the new document is much more detailed in analyzing what bankers consider critically important for revision.
Recall that the CLARITY Act is the subject of heated debate. It was previously supported by Donald Trump and the federal law enforcement association NOBLE. However, the issue of stablecoin yield remains one of the three main reasons the document has not yet been passed. There is also no consensus on Section 604, which addresses developer protection and ethical standards.
My analysis: Section 404 is not just a technical detail but a key element defining the future of stablecoins in the U.S. If banks get their way, we will see much stricter regulation that effectively prevents stablecoins from competing with traditional deposits. For the market, this means a reduction in the appeal of the "digital dollar" as a passive income tool, but potentially greater stability and predictability for institutional players. The Senate's time for negotiation is running short: there is very little left until the August recess.