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The American Bankers Association (ABA), the Independent Community Bankers of America, and 76 other industry groups sent a collective letter to Senate Majority and Minority Leaders John Thune and Chuck Schumer. The main goal of the document is to secure substantial amendments to Section 404 of the CLARITY Act, which is currently under consideration in the upper chamber of Congress.

What's Wrong with Section 404: Banks vs. 'Deposit' Yields on Stablecoins

Section 404 is designed to regulate the accrual of yield on stablecoins. In its current version, it effectively prohibits issuers from paying interest or other rewards similar to bank deposits for simply holding funds in payment stablecoins. Only incentives tied to user activity—such as for conducting transactions or using the platform—remain permitted.

The signatories propose four key changes:

• Remove the word "solely" from subparagraph (1)(A) to avoid narrow interpretations.
• Delete the phrases "on the balance of a payment stablecoin" and "on an interest-bearing deposit at a bank" from subparagraph (1)(B).
• Replace the criterion "economically or functionally equivalent" with a more flexible standard of "substantially similar" throughout Section 404.
• Completely remove subparagraph (3)(B), which bankers argue creates an internal contradiction with neighboring prohibitions.

The banking community argues its position by stating that the current wording is too narrow and allows unscrupulous issuers to circumvent the ban through additional incentives. Furthermore, they believe the subparagraph on incentives directly contradicts the ban itself, creating legal uncertainty.

Risk of Deposit Outflow: The Main Threat to Community Banks

The letter emphasizes that while supporting responsible innovation and a transparent digital asset market, bankers are extremely concerned about the potential consequences of the current version. They fear that the law's ambiguity could encourage the creation of stablecoin schemes that effectively replace bank deposits. This directly threatens the resource base of community banks, which finance mortgages, small businesses, and agriculture.

"Concerns remain: the ambiguities of the draft could encourage stablecoin schemes that may effectively replace bank deposits, even though Congress initially stated that payment stablecoins should be used as a settlement tool, not as a store of value," the association's statement reads.

Earlier, five leading U.S. banking lobbies had already taken a similar stance. The new document details what bankers consider critical for revision. Notably, the issue of stablecoin yield remains one of the three main reasons the law has not yet been passed. Consensus has also not been reached on Section 604, which addresses developer protection and ethical standards.

Donald Trump has urged senators to speed up, and the bill has also been supported by NOBLE and the Federal Law Enforcement Officers Association. However, the Senate has very little time left before the August recess. Whether lawmakers will manage to reach an agreement on stablecoins, developers, and ethics remains a big question.

Cryptalist Analyst Comment: The banking lobby in the U.S. is demonstrating a classic tactic to defend its positions—it is not blocking the law but trying to gut its key provisions. Section 404 is not just a technical norm but a fundamental question: will stablecoins become a full-fledged alternative to bank deposits, or will they remain merely a payment tool? Given that only a few weeks remain before the recess, the likelihood of CLARITY being passed in the current session is rapidly declining. The stablecoin market continues to grow, while regulatory clarity is postponed indefinitely.