134 Senior Bank Executives Call for Stablecoin Law Reform to Prevent Deposit Outflows

In a stark confrontation between the traditional financial system and the burgeoning cryptocurrency industry, 134 senior banking executives in the United States have sent a serious warning to the Senate, calling for the immediate reform of the CLARITY Act.

According to Mihan Blockchain, these bankers warn that offering any kind of interest or rewards for holding stablecoins could lead to the outflow of hundreds of billions of dollars from bank deposits, posing an unprecedented challenge to banks' ability to lend to families, farmers, and local businesses.

Bank Leaders Pressure Senate to Rewrite Stablecoin Provisions
The letter from banking leaders regarding the CLARITY Act urges Senator John Thune (Republican from South Dakota), the Senate Majority Leader, and Senator Charles Schumer (Democrat from New York), the Senate Minority Leader, to amend Section 10404 of the CLARITY Act.

Section 10404 of this cryptocurrency law imposes restrictions on paying interest or yields on stablecoins. Bank executives are asking lawmakers to strengthen this provision so that companies cannot circumvent the prohibition through rewards, incentives, or other mechanisms that create similar economic benefits for holding stablecoins.

Bank leaders stated:

"Therefore, we urge the Senate to make targeted changes to Section 10404, as recommended by our state banking associations, before final approval."

This group warned:

"If stablecoin products are allowed to attract and retain balances through quasi-interest rewards or other asset-holding incentives, the local funding base that supports lending could be weakened by hundreds of billions of dollars."

The letter argues that deposits provide a foundation for lending to families, small businesses, farmers, and local employers. The signatories of this letter stated that clear regulations would allow for the development of payment stablecoins while also preserving the funding channels that support community-based lending.

Stablecoin Rewards Become a Central Topic in Cryptocurrency Legislation
This debate highlights a broader disagreement regarding the future role of stablecoins in financial markets. Bankers argue that payment stablecoins should remain focused solely on transactions rather than becoming products designed to attract long-term deposits.

The banking industry has previously raised concerns about the yields of stablecoins while examining digital asset companies and policymakers regarding how rewards, incentives, and reserve structures impact competition with traditional financial institutions.

The signatories of this letter argued that incentives related to balances, holding periods, or account durations could reproduce the characteristics of yield-generating products, making it essential to establish clearer boundaries in the CLARITY Act.

This issue has also been raised in discussions about how this bill addresses stablecoin incentives, as the debate over stablecoin rewards in the CLARITY Act has intensified disagreements over how regulatory bodies define "prohibited yield mechanisms."

Banks Warn: Growth of Stablecoins Could Alter Lending Landscape
Bank leaders say that deposits remain the primary source of funding for mortgages, business development, agricultural operations, and local investments. They argue that stablecoin products designed around "holding incentives" could disrupt these financial flows.

This discussion has emerged amid broader industry concerns about the risks of stablecoin deposits, as financial institutions assess how digital assets compete with traditional banking products.

Proposed reforms in the CLARITY Act, while preserving innovation in stablecoin payments, limit structures that bankers believe could reproduce quasi-deposit incentives without the same regulatory framework that applies to insured banks.

The final text approved by the Senate regarding stablecoins will clarify how payment-focused digital assets operate within the broader financial system of the United States.