Banks and cryptocurrency companies appear inexorably at odds over how stablecoin yields will be treated both in legislation and regulation.
A bipartisan pair of senators – Thom Tillis, R-NC, and Angela Alsobrooks, D-MD – floated language in the Clarity Act, first reported Friday, that would bar crypto firms from issuing rewards for stablecoin balances that are "economically or functionally equivalent" to interest-bearing bank deposits.
Bank trade groups, however, argue the compromise would allow rewards for users who participate in a membership program – potentially letting platforms bypass the yield ban for passive stablecoin holders.
"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," the Bank Policy Institute, American Bankers Association, Consumer Bankers Association, Financial Services Forum and Independent Community Bankers of America said Monday in a joint statement.
The trade groups cited research that yield-earning stablecoins could reduce consumer, small-business and farm loans by 20% or more.
In an X post Monday, Tillis noted the compromise “allows crypto companies to offer other forms of customer rewards" aside from yield.
"Most importantly, it helps put us on a bipartisan path to pass the CLARITY Act, providing the regulatory certainty needed to foster innovation,” the senator wrote. “Some in the banking industry may not want either of these things to happen, and we respectfully agree to disagree."
Quick to respond to the new legislative language, Coinbase CEO Brian Armstrong urged lawmakers Friday to “mark it up.”
Sen. Tim Scott, R-SC, wrote Monday in his own X post that the Senate Banking Committee, which he chairs – and on which Tillis and Alsobrooks both sit – is “working toward a bipartisan markup in May.”
The Treasury Department and Commodity Futures Trading Commission would issue a rulemaking to determine which products and scenarios qualify as equivalent to yield rewards, according to Friday’s language.
But another regulator has sway, too.
The Office of the Comptroller of the Currency proposed a rule, implementing the Genius Act, which would bar platforms from paying yield on stablecoins held in custody. However, issuers may challenge the ban if they can show that a third-party arrangement doesn't violate the law.
Public comments on the OCC proposal were predictably divided – with bank groups asking the regulator to treat all custody-related interest-bearing benefits as prohibited. Crypto firms, meanwhile, asserted the proposal leaves an avenue for third parties to offer incentives.
Several banking trade groups asked the OCC for a 60-day extension to the comment period.
If stablecoin issuers are allowed to use third-party arrangements to work around the yield ban, "community bank lending [could] fall by $850 billion," ICBA argued.
Coinbase, however, asserted the ban should be kept narrow.
"The OCC should not broaden the issuer-yield prohibition to cover 'direct or indirect' yield," the company wrote. "Instead, the OCC should preserve the issuer-only compromise in GENIUS and confirm that profit-sharing and other third party rewards remain permissible where the issuer is not paying yield 'solely for holding' the stablecoin."
It’s unclear whether the legislative compromise will survive the committee vote.
“It’s probably going to pass Banking as a partisan bill and then we’ll solve whatever last-minute concerns the Democrats have,” Sen. Bernie Moreno, R-OH, told CNBC. “But at some point, you gotta put the pen down.”
