Banks Slam CLARITY Act's Stablecoin Circuit Breaker as 'Not a Safeguard at All'

Eight major banking groups are warning that the revised CLARITY Act could create risks for depositors and lenders if stablecoin rewards work like bank interest. The banks say the bill's 'circuit breaker' may come too late to stop deposit losses and lending problems.

The letter, sent to Senate leaders John Thune and Charles Schumer ahead of a key vote on September 15, argues that payment stablecoins were created mainly for payments, not as a place to store money. If users move deposits into stablecoins, banks could have less money to provide mortgages, small-business loans, farm loans, and other community credit.

The banking groups want lawmakers to make specific changes to Section 10404 of the bill, which covers interest and yield on payment stablecoins. They are asking for the removal of certain words and phrases, including 'solely' from Section 10404(c)(1)(A), and replacing the 'economically or functionally equivalent' test with a 'substantially similar' test.

Treasury Secretary Scott Bessent defended the circuit breaker, saying it gives the Treasury more power to protect community banks if stablecoins cause deposit losses. However, crypto supporters pushed back on the banks' concerns, arguing that stablecoin rewards have been offered for years without causing major problems.