The risk of “deposit flight” resulting from the integration of digital currencies into the U.S. banking system has raised considerable concerns among financial services organizations since the signing of the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, leading to delays in its implementation.
Legislation introduced to address these concerns, dubbed the Clarity Act, would attempt to close a “loophole” that caused banks have been sounding the alarm about for nearly a year by drawing a bright line between yield rewards related to stablecoins and those tied to traditional forms of currency held in a bank account.
One of the core provisions of the GENIUS Act was a prohibition preventing stablecoin issuers from paying interest or yield rewards to customers who hold them. Since the law does not explicitly prevent affiliated exchanges or platforms from offering rewards or yield-bearing programs, banks feared customers would elect to transfer their funds from traditional banks to high-yield stablecoin alternatives.
The House voted 294-124 to approve the Digital Asset Market Clarity Act of 2025 on July 17, 2025 – days after the GENIUS Act was signed into law. Despite strong bipartisan support in the House, it has faced a rougher road in the Senate, as many industry advocates have pointed out to lawmakers that the bill may not adequately address concerns about stablecoin yields.
Numerous trade associations representing banks of all sizes issued a joint statement in response to newly proposed language on stablecoin yield included in the Senate’s version of the Clarity Act, introduced by Sen. Thom Tillis (R-N.C.) and Sen. Angela Alsobrooks (D-Md.), including the American Bankers Association (ABA), the Bank Policy Institute, the Consumer Bankers Association, the Financial Services Forum and the Independent Community Bankers of America (ICBA).
While the trade groups expressed appreciation for the senators’ efforts, they indicated that more work needs to be done to sufficiently address the issue and failure to do so could have a negative impact on the financial services marketplace.
“Now that their proposed language is public, we are working to provide feedback that balances both the innovation and the community lending necessary to ensure that America’s economy is the strongest and most resilient in the world,” the trades wrote. “Senators Tillis and Alsobrooks are seeking to achieve the correct policy goal – prohibiting the payment of yield and interest on stablecoins; however, the proposed language falls short of that goal. It is imperative that Congress get this right. Research demonstrates that yield-earning stablecoins could reduce all consumer, small-business, and farm loans by one-fifth or more, making it essential for the prohibition to be clear and transparent.”
One example of a weakness the trades identified in the language appears under Section 404 of the draft bill. The language would permit exchanges and other crypto intermediaries to pay interest or yield for a user’s participation in an exchange’s membership program, provided the payments are not calculated or distributed like banks’ payment or distribution of interest or yield.
The banks also noted that the proposal would allow for permissible rewards to be calculated by reference to duration, balance and tenure, which they claimed would incentivize the stablecoins simply hold their tokens for extended periods of time. For specific balances, they argued this would negate the goals of the upfront prohibition – to deter deposit flight – while tying rewards directly to how much or how long customers hold payment stablecoins in wallets or exchanges.
Trade organizations have written to the prudential banking regulators, asking for the implementation of the GENIUS Act to be delayed until these concerns are resolved.
A letter from ICBA to the Office of the Comptroller of the Currency (OCC) insisted the agencies must:
- Minimize the negative impacts of stablecoins on community banks and credit to local communities.
- Minimize deposit flight and the impact on credit creation.
- Clarify key definitions to prevent regulatory gaps and protect end users.
- Establish strong consumer protection guardrails for payment stablecoins.
- Foster safety and soundness of payment stablecoin issuers.
- Place appropriate operational limits on permitted payment stablecoin issuers.
The ABA and its 52 local affiliates wrote to the OCC and the U.S. Treasury on May 6, urging them to delay implementation of the GENIUS Act until concerns about its impact, as well as state-level legislative proposals concerning stablecoins, have been addressed.
“Treasury must send a strong signal to state legislatures that getting it right is more important than moving quickly to pass laws that might have to be amended later,” the associations wrote. “Rather than rush to an artificial conclusion, it would be better to cultivate a culture of ‘measure twice, cut once’ by creating the necessary conditions for states to legislate in the most productive fashion. Moreover, having a finalized OCC Genius rule in place when evaluating Treasury’s notice of proposed rulemaking would allow stakeholders to deliver relevant and ripe issues for consideration.”
The trade groups also asked the Treasury to clarify it will not penalize state regulators for filing an initial certification later than the one-year anniversary of the Genius Act’s effective date or permitting them to file a status report by the one-year mark.