BPInsights: May 9, 2026

Stablecoin Yield Prohibition Must Preserve Community Lending

Sens. Thom Tillis (R-NC) and Angela Alsobrooks (D-MD) last week released legislative language on stablecoin issuers' ability to pay yield, a key part of the pending crypto market structure bill. BPI, the American Bankers Association and a coalition of banking trades sent a letter to Senate Banking Committee leaders on Friday expressing concern about the yield language: "Our concern is that payment stablecoin yield, or incentives that act like yield, can reduce U.S. deposits and, in turn, banks' capacity to extend credit across the country." The letter recommended meaningful changes to the language to prevent evasion that could siphon deposits out of the banking system.

Earlier this week, a coalition of banking groups expressed concern in response to the language: "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."

• Open to Evasion. Any ban on stablecoin yield payments must be airtight - this proposal, however, still has gaps in the language which could allow for evasion and payment of interest and yield on balances to continue. As one example, the provision, known as Section 404, 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. Additionally, the proposal also allows 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 and thereby undercutting the goals of the prohibition (to deter deposit flight).

• Senators' Response. Sens. Tillis and Alsobrooks responded to the banking industry's concerns, saying the language puts lawmakers "on a bipartisan path to pass the CLARITY Act, providing the regulatory certainty needed to foster innovation."

• Timing. The White House has pushed for passage of the legislation by July 4. A markup could happen as soon as next week, when Congress returns from recess.

Five Key Things

1. Yield-Bearing Stablecoins Don't Just Reshuffle Deposits - They Destroy Them

A new BPI blog post explains why yield-bearing stablecoins don't simply redistribute deposits within the banking system - they siphon them out of it, and in doing so, they starve growth-supporting loans of their funding.  While some public commentary has suggested that the growth in stablecoins backed by Treasury bills will not reduce the level of bank deposits because the deposits would just move around the system, that conclusion is based on an incomplete analysis. A full accounting of this effect must consider the whole picture: the adjustment of interest rates, the aggregate rebalancing of assets and liabilities. A comprehensive understanding of how yield-bearing stablecoins affect deposits and loans is critical as policymakers determine how stablecoins are regulated and whether they can pay interest or yield. Read more here.

2. Bowman Calls for Broad, Cross-Sector Solution to Fraud

Fraud is a large-scale problem requiring an equally comprehensive solution, said Federal Reserve Vice Chair for Supervision Michelle Bowman at a Women in Housing and Finance event on Tuesday. As fraud and scams gain sophistication, speed and ubiquity through technological advances, they increasingly threaten the financial security of American consumers, she said. Banks are investing heavily in preventing and remediating fraud, but no single sector or government agency can tackle fraud alone, she suggested - an effective solution requires a coordinated cross-sector, interagency response.

• Social Media and Fake Ads. Bowman flagged common tactics for fraud, such as social media impersonation and scam ads.

• Financial System Threat. Fraud threatens the reliability and trustworthiness of the financial system, Bowman said. She noted that community and regional banks are particularly affected by fraud, with fraud losses among their most significant financial risks.

• What's Next. The Fed is incorporating feedback from hundreds of responses to its request for information on payments fraud, and plans to participate in a public-private fraud roundtable with the Federal Communications Commission and Treasury Department. The agencies will discuss data-sharing practices, prevention strategies and what public sector support is needed. Bowman called for enhanced guidance and resources for banks, improved detection and mitigation tools, stronger industry engagement and collaboration and development of standardized terminology to improve data sharing across systems.

3. The Crypto Ledger

Here's the latest in crypto.

• Iran's Chief Sanctions Buster: Death Row to Crypto. The Wall Street Journal published an article this week describing how Babak Zanjani, Iran's most famous sanctions evader, has recently spearheaded sanctions evasion through a network of crypto exchanges.

• DeFi Investors Flee. The decentralized finance (DeFi) sector is experiencing mass investor outflows - nearly $14 billion - after a pair of high-profile hacks in the sector, including the North Korean-linked hack of Aave.

• Coinbase Layoffs. Coinbase will lay off about 14 percent of its staff as artificial intelligence streamlines its workload, the firm announced this week. PayPal was also among companies recently announcing AI-related layoffs, with plans to lay off about 20 percent of its workforce over the next two to three years.

• Coinbase Sued by 'Crypto Whale'. An anonymous "crypto whale" (a significant investor) accused Coinbase in a lawsuit this week of failing to return funds stolen from the user in a 2024 hack.

• Kraken Accuses Custodian of Misappropriating Client Funds. The parent company of crypto exchange Kraken recently accused Etana Custody of misappropriating $25 million in client funds, according to a recently filed lawsuit.

4. A Case for AML Reform: Even the Pope Thwarted by KYC Hassles

Pope Leo is head of the world's largest Christian church, but even he is no match for the anti-money laundering bureaucracy that frequently ensnares law-abiding bank customers in frustrating interactions. The pontiff called his bank in the U.S. to change the address and phone number associated with his account. He correctly answered the required security questions, but was told he would have to come to the branch in person to make the desired changes. "I'm not going to be able to do that," the Pope responded, according to a friend who recounted the story. It seems like a clear case for revisiting the ineffective approach to AML screening that BPI has long advocated.

5. Anthropic, FIS Launch Partnership to Develop AI Tools for Financial Crimes Detection

Anthropic and Fidelity National Information Services (FIS) this week announced a partnership to develop new artificial intelligence tools to enhance banks' ability to detect financial crime. The first product of the development effort is an AI agent to investigate drug traffickers, terrorists and other criminals exploiting the financial system. BPI has long advocated for AI and other sophisticated technology to be incorporated more fully into the AML compliance regime to maximize efficiency and effectiveness of screening.

In Case You Missed It

Traversing the Pond

Here's the latest in international banking policy.

• Dollar Dominance Slows Digital Euro Progress. The global dominance of the U.S. dollar is slowing progress on the EU's ambition to launch a central bank digital currency, according to Bloomberg this week. With key deadlines slipping, it is likely that ECB President Christine Lagarde's term will be up before the project is launched, according to the article. Lagarde has been a strong proponent of the digital euro.

• Foreign Demand for U.S. Treasuries Stalling, IIF Reports. Net purchases of U.S. Treasuries by foreign investors have been stable this year, compared to increased accumulation of Japanese and European sovereign debt by foreigners, according to a report this week by the Institute of International Finance. This suggests that foreign investors are diversifying away from U.S. government bonds.

• BoE's Bailey Warns on Private Credit. Bank of England Governor Andrew Bailey this week emphasized the need for caution on private credit risk. "There is no doubt that private credit offers significant benefits to the financial system and can support much-needed economic growth by offering alternative credit solutions to borrowers, providing financing to underserved sectors and diversifying lending," Bailey wrote in a Financial Times op-ed this week. "In recognising the benefits, however, we must be mindful of the potential risks." Such risks include opacity in the market, interlinkages with the banking system and that private credit "remains untested in a severe or prolonged economic downturn," he wrote. Bailey outlined "clear and necessary next steps" for central banks and regulators, including monitoring for vulnerabilities across the ecosystem and tackling inconsistent definitions.

• FSB Publishes Private Credit Report. The Financial Stability Board this week published a report on private credit, highlighting some of the same risks flagged by Bailey: interlinkages with banks, borrower credit quality concerns and valuation opacity. Private credit has grown rapidly and remains untested in a prolonged economic downturn, with high leverage and concentration in specific sectors potentially amplifying stress, the report notes. It encourages authorities to close data gaps, harmonize definitions to enhance monitoring and deepen analysis of financial interconnections and liquidity issues.

• EU Eyes Mythos Vulnerability Testing. The European Union is seeking to test banks and companies for vulnerabilities in the Anthropic Mythos AI model, according to Economy Minister Valdis Dombrovskis this week. The EU has been in touch with Anthropic on this topic, and the company briefed the European Commission on Mythos' cyber capabilities and risks.

Member News

Synchrony Spotlights Financial Wellness for Women's Health Month

In recognition of Women's Health Month, Synchrony has partnered with Savvy Ladies - a nonprofit providing free financial education to women - to launch the "Financial Health is Women's Health" campaign. The initiative focuses on financial wellness as a core component of overall health, helping women move from awareness to action on their financial futures. Learn more and watch the video here.

Upcoming Events

• 5/13/2026: House Financial Services Committee Markup
• 5/18/2026: European University Institute & Bank Policy Institute 2026 Research Conference on Banking Regulation
• 5/19/2026: House Financial Services Subcommittee on National Security, Illicit Finance and International Financial Institutions Hearing on Modernizing the BSA for the 21^st Century
• 5/20/2026: Semafor Banking on the Future Forum
• 5/20/2026: House Financial Services Subcommittee on Digital Assets, Financial Technology and Artificial Intelligence Hearing: How Bank-Fintech Collaborations Enhance Financial Infrastructure