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Although banks still hope to head off the competitive challenge from stablecoin issuers by refining the wording of the prohibition on interest, they face opposition from politicians on both sides of the aisle.
With the Senate Banking Committee markup scheduled for May 14, 2026, banking lobbyists are still seeking further amendments to the bill.
Led by the American Bankers Association (ABA), the industry is looking to revise Section 404, which outlines provisions for the prohibition of interest and yield on payment stablecoins.
As covered by Vixio, this issue has been the subject of several months of both public and private negotiations between lawmakers, the US crypto industry and the banking sector.
In early May 2026, a bipartisan agreement between Senators Thom Tillis (R-NC) and Angela Alsobrooks (D-MD) on a revised Section 404 succeeded in breaking the deadlock among lawmakers.
However, when the Tillis and Alsobrooks agreement was made public, it was not to the satisfaction of the ABA, which immediately called for its members to advocate for additional changes.
ABA escalates opposition to wording
In an open letter published on May 10, 2026, ABA president and CEO Rob Nichols urged bank leaders to join an industry-wide effort to revise the bill once more before the markup vote.
He called on them to contact their senators using ABA’s grassroots platform, Secure American Opportunity, and urge them to strengthen language designed to prevent crypto firms from offering interest-like rewards on stablecoins.
“We believe the current proposal would unnecessarily incentivize the flight of bank deposits into payment stablecoins, putting both economic growth and financial stability at risk,” said Nichols, who also recommended that bank CEOs encourage their employees to join the advocacy effort.
Nichols’ warning underscores a systemic anxiety within the banking sector. If payment stablecoins can legally offer yield-like incentives, the fear is that they will become a direct competitor to traditional savings accounts.
Regional and community banks already fighting to retain deposits in a competitive macro environment argue that an unchecked stablecoin yield market could severely strain their balance sheets and limit localised lending capacity.
The ABA also wrote an open letter to the Senate Banking Committee, spelling out the exact changes that the banking industry is seeking.
The letter was co-signed by the Bank Policy Institute (BPI), the Consumer Bankers Association (CBA), the Financial Services Forum (FS Forum), the Independent Community Bankers of America (ICBA), and the National Bankers Association (NBA).
Although these banking groups say they are aligned with the stated objective of Section 404, the prohibition of interest-like payments on stablecoin balances, they argue that the wording of the bill creates exceptions that will enable this prohibition to be evaded.
The bankers accept that the CLARITY Act should permit certain stablecoin transactions and activities to generate “rewards” for users, in the form of “incentives” or “rebates”.
However, they object to the wording of certain key clauses of the latest bill, noting that these will create loopholes that will allow covered providers to skirt the core prohibition.
For example, the signatories argue that it is currently unclear whether the bill would capture and prohibit the following types of interest-like reward structures:
- Payments made on a balance or account structured like a money market mutual fund, rather than an interest-bearing bank deposit.
- Paying a stablecoin holder a flat amount monthly that increases as balances increase.
- Paying a reward to a stablecoin holder based on their stablecoin balance but triggered by making a specified number of transactions monthly.
If these specific clauses remain unamended, the banking lobby suggests they could act as a roadmap for stablecoin issuers.
The crypto industry has a long history of rapid product engineering to bypass strict legal definitions. Should the bill pass unchanged, stablecoin providers would likely launch multi-utility reward programs that tie yields to active platform usage or transactional volume.
Key phrases targeted for removal
As the bill stands, Section 404 (C) (1) opens with a general prohibition on the payment of “any form” of interest or yield by payment stablecoin firms.
However, two subsequent clauses then clarify the nature and limitations of this prohibition. The first prohibits covered parties from paying interest or yield “solely in connection with the holding of payment stablecoins”.
In their letter to senators, the banking groups recommend that the word “solely” be struck from this clause.
They point out that the current wording would create opportunities for covered parties to pay interest or yield in ways that are not “solely” in connection with the “holding of payment stablecoins”.
A second clause then states that a covered party may not pay interest or yield on a “payment stablecoin balance” in a manner that is “economically or functionally equivalent to the payment of interest or yield on an interest-bearing bank deposit”.
Once again, the banking groups argue that the test for “functional and economic equivalence” creates an “overly narrow standard” that will not effectively prohibit compensation tied to idle stablecoin balances.
They note that such payments could be structured differently to an interest-bearing deposit account, but nevertheless could have “substantially similar” effects.
In order to align these two clauses with Congressional intent, the bankers recommend that “solely” be struck from the first, and that “on a payment stablecoin balance” and “on an interest-bearing deposit” be struck from the second.
Finally, they recommend replacing the “functional and economic equivalence” standard with one evaluating “substantial similarity”. This is a strategic play to broaden future enforcement powers.
Whereas “equivalence” requires a strict, matching legal or financial definition, “substantial similarity” would grant regulators discretionary power to penalise stablecoin issuers based on the perceived net effect of their products.
For the crypto sector, this change would introduce a layer of regulatory unpredictability they have been fighting to avoid, meaning they will not willingly concede the point.
Bill unlikely to be revised again prior to markup vote
With time running out until the markup vote, it is unlikely that the banking community’s recommendations will find their way into the latest iteration of the bill.
To date, neither the majority nor minority arm of the Senate Banking Committee has responded positively to the banking industry’s demands.
On the contrary, since the ABA sent its open letters to senators and industry, the committee majority has issued several statements defending the current bill while declining to address the banking industry’s proposed revisions directly.
On May 12, 2026, for example, majority members led by Chairman Tim Scott (R-SC) issued two fact sheets on the CLARITY Act, alongside the latest text of the bill.
In one of these, which is styled as a CLARITY Act “myths vs facts” sheet, committee majority members dismiss the claim that the bill puts “banks, taxpayers, and the financial system at risk”, going on to state that “the real risk is the status quo”.
Moreover, Chairman Scott continues to state that his hope for the latest version of the bill is for it to be marked up in May, before heading to the Senate floor in June or July and reaching President Trump’s desk by the end of summer.
Scott’s comments underscore the extent to which Senate leadership now views passage of the CLARITY Act as a realistic near-term objective, despite continued opposition from banking industry leaders.
However, although the push for a summer Senate floor vote suggests political momentum, the banking lobby’s resistance could mean that a grueling floor debate lies ahead.
If the ABA fails to secure amendments during the markup, it will almost certainly focus its lobbying efforts on the full Senate. This risks fracturing the fragile bipartisan coalition and dragging the timeline well past the end of summer, despite Chairman Scott's optimism.
