Banking Trades Statement on Crypto Market Structure Yield Language

Following the release of proposed language on stablecoin yield in the Clarity Act, the Consumer Bankers Association, American Bankers Association, Bank Policy Institute, Financial Services Forum and Independent Community Bankers of America issued the following joint statement:

"We appreciate the work by Senator Tillis and Senator Alsobrooks to address the concerns from banks of all sizes around the risk of deposit flight from paying yield on stablecoins. Now that their proposed language is public, we are working to provide feedback that balances both the innovation and the community lending necessary to ensure that America's economy is the strongest and most resilient in the world.

"Senators Tillis and Alsobrooks are seeking to achieve the correct policy goal - prohibiting the payment of yield and interest on stablecoins; however, the proposed language falls short of that goal. It is imperative that Congress get this right. Research demonstrates that yield-earning stablecoins could reduce all consumer, small-business, and farm loans by one-fifth or more, making it essential for the prohibition to be clear and transparent.

"We will be sharing our detailed suggestions for strengthening the proposed language with lawmakers in the coming days, and we will continue to work in good faith to help Congress embrace innovation while protecting the deposits that drive local lending and economic activity in their communities."

Additional Background

Among the examples of evasion that could be permitted under Section 404 as drafted, the language permits exchanges and other crypto intermediaries to pay interest or yield for a user's participation in an exchange's membership program, so long as the payments are not calculated or distributed like banks' payment or distribution of interest or yield. This is a significant loophole that must be addressed.

Likewise the proposal allows for permissible rewards to be calculated by reference to duration, balance, and tenure. Overtly incentivizing the idle holding of payment stablecoins for extended periods of time, and for specific balances, would negate the goals of the upfront prohibition (to deter deposit flight) while tying rewards directly to how much/long customers hold payment stablecoins in wallets or exchanges.