Major banking trade groups have expressed reservations about a proposed legislative amendment aimed at resolving a significant obstacle to advancing cryptocurrency market structure legislation. The amendment, a compromise reached by Senators Angela Alsobrooks (D-Md.) and Thom Tillis (R-N.C.) after months of negotiation involving the White House, the banking lobby, and the crypto industry, seeks to address concerns over stablecoin interest payments.
Key Takeaways
- Prominent banking industry associations have stated that a recently proposed legislative fix for a key stablecoin provision in crypto market structure legislation is insufficient.
- This development follows a compromise agreement between Senators Alsobrooks and Tillis, intended to resolve a dispute that had stalled legislative progress for months.
- The proposed language aims to prevent “covered parties” from offering interest or yield on stablecoins to U.S. customers, with specific exclusions for activity-based rewards.
- Banking groups argue that the current language does not fully prevent incentives that could draw deposits away from traditional banks, while crypto firms contend that restrictions could stifle innovation.
- Senator Tillis maintains that the compromise effectively addresses concerns about deposit flight by ensuring stablecoin rewards do not mimic interest on bank deposits.
The revised legislative text aims to prohibit “covered parties” from providing any form of interest or yield to U.S. customers solely for holding stablecoins, or engaging in practices “economically or functionally equivalent to the payment of interest or yield on an interest-bearing bank deposit.” However, this prohibition would not extend to rewards and incentives tied to genuine “activity-based or transaction-based” engagement.
In a joint statement, the American Bankers Association, Bank Policy Institute, Consumer Bankers Association, Financial Services Forum, and Independent Community Bankers of America argued that while the senators’ objective to prohibit yield on stablecoins is appropriate, the proposed language “falls short of that goal.” They emphasized the importance of Congress enacting precise policy in this area.
For the past year, banking organizations have voiced opposition to provisions within proposed stablecoin legislation that, while barring issuers from directly paying interest, might allow platforms like Coinbase to offer rewards. Their primary concern is that such incentives could lead to a significant outflow of deposits from traditional banking institutions, particularly community banks. Conversely, cryptocurrency firms argue that limitations on rewards would impede innovation within the sector.
The legislative path for broader crypto market structure regulation has been marked by repeated delays. Following the House’s passage of the Clarity Act, the Senate Banking Committee had scheduled a hearing in July. However, this was unexpectedly canceled when Coinbase, a major cryptocurrency exchange, withdrew its support, citing concerns over the stablecoin reward language, among other issues. The exchange has since indicated support for the latest proposed version.
A comprehensive federal framework for the crypto industry would generally involve delineating regulatory authority between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).
Potential Regulatory Precedent and Ongoing Challenges
The path forward for this legislation remains complex, with additional hurdles to overcome. These include addressing potential conflicts of interest associated with former President Donald Trump and concerns regarding illicit finance. The limited time available on the Senate floor further complicates the legislative process.
The banking groups specifically highlighted potential loopholes, such as how exchanges might offer interest through membership organizations or permit rewards to be calculated based on factors like “duration, balance and tenure.” They contend that such mechanisms could “overtly incentiviz[e] the idle holding of payment stablecoins for extended periods of time, and for specific balances,” thereby undermining the stated objective of preventing deposit flight.
Representatives from the banking trade groups indicated their intention to continue engaging with lawmakers. “We will be sharing our detailed suggestions for strengthening the proposed language with lawmakers in the coming days, and we will continue to work in good faith to help Congress embrace innovation while protecting the deposits that drive local lending and economic activity in their communities,” they stated.
Senator Tillis responded on X, formerly Twitter, stating that he and Senator Alsobrooks had collaborated with all stakeholders, including the banking industry, over several months. He described the resulting compromise as a “substantially improved, consensus-based product” that prohibits stablecoin rewards from resembling bank deposit interest, addressing their core concern about deposit flight.
Tillis also suggested that the compromise provides a bipartisan foundation for passing crypto market structure legislation. He acknowledged potential disagreements, stating, “Some in the banking industry may not want either of these things to happen, and we respectfully agree to disagree.”
Based on materials from : www.theblock.co