Community Bankers Demand Total Ban on Stablecoin Rewards

Key Takeaways

Community Banks Draw Close Ranks On Stablecoin Yield

Passing the Digital Asset Market Clarity Act has become a difficult task, as issues believed to be solved rise again.

While both parties, the crypto industry and big banking, had reached a compromise on the language to confine stablecoin rewards to activity rather than ownership, this key pain point has been revived by community banks, which have already swayed at least two Republican senators, Josh Hawley and Jerry Moran, to oppose CLARITY in its current form.

Independent Community Bankers of America (ICBA), a membership organization that groups roughly 5,000 community banks in the U.S., has recently updated its demands for changes to the CLARITY Act and highlighted how a wrong decision could affect the future of these institutions and the groups that receive credit through their intermediation.

In an interview with Banking Dive, Rebeca Romero Rainey, president and CEO of ICBA, declared that the discussion around these rewards should not revolve around compromise, as the future of the community banking sector might be at stake.

“There’s always the suggestion, well, how do we make both sides happy on this? For us, this loophole has to be closed entirely. There’s not a middle ground in terms of resolution,” Romero said.

She stressed that the main concern around CLARITY was deposit flight, estimating that $1.3 trillion could leave the banking system for stablecoins, prompting an $850 billion decline in local lending.

“There’s nothing to suggest that cryptocurrency would replace those deposits and redeploy them in local communities. That’s what has gotten the attention of a number of senators at this point,” Romero explained.

Finally, Romero criticized the “Effects of Stablecoin Yield Prohibition on Bank Lending” report issued by the Council of Economic Advisers of the White House, which downplays banks’ concerns about deposit flight.

“The rationale for some of this pushback doesn’t make sense because it doesn’t take into account a significant change in the environment if this legislation were passed,” she concluded.

The Senate has convened for a vote on the CLARITY Act on September 15, but it seems unlikely that at least 60 senators will agree to move the bill for further consideration, which would kill it for the foreseeable future.