CLARITY Act: Banking Group Pushes Back on White House Stablecoin Report as Senate Returns

The American Bankers Association (ABA) has criticized the White House report on stablecoin yields, stating that the study focused on the wrong question. This comes as the Senate returns from its recess, with expectations that the CLARITY Act’s markup could hold in the second half of this month.

ABA Criticizes White House Study On CLARITY Act

In a release, the banking group stated that the White House study on stablecoin yields by the Council of Economic Advisers (CEA) focused on the wrong question for policymakers, asking what happens to bank lending if there is a ban on stablecoin rewards. They noted that the live policy concern is whether allowing yield on payment stablecoins would encourage deposit flight, especially from community banks.

As CoinGape reported last week, the White House study on stablecoin yields stated that a ban on stablecoin yields will do little to boost bank lending. They also addressed deposit flight risk, noting that concerns over this are “quantitatively small.”

The American Bankers Association argues that these White House economists focused on the wrong question. “By focusing on the effects of a prohibition, the CEA paper risks creating a misleading sense of safety by avoiding the much more consequential scenario: yield-paying payment stablecoins scaling quickly,” the release stated.

The banking group acknowledged that the CEA may have chosen its framing for analytical purposes. However, they suggested that the economists may have framed the study in a way that favors the crypto industry, as the banks and crypto stakeholders clash over the stablecoin yield text in the CLARITY Act.

The release stated that the White House study tracks the crypto industry’s preferred narrative, which is to treat yield prohibition as the “intervention” and then conclude that the modeled effects of a ban are small. “Policymakers should not mistake that narrow result for evidence that yield-paying payment stablecoins are benign,” the ABA said.

The Key Omission

The banking group stated that the White House largely does not analyze what happens at the bank level when deposits migrate into yield-paying stablecoins. They noted that when a community bank loses deposits, it must replace the funding quickly, often through higher-cost wholesale borrowing, such as Federal Home Loan Bank advances or capital market funding.

The ABA added that the banks also face pressure to raise deposit rates to retain customers. As such, they believe that allowing stablecoin rewards under the CLARITY Act could spark deposit outflows, raising community banks’ cost of funds. “Higher funding costs translate into less lending and higher borrowing costs for households and small businesses,” they argue.

The bankers added that this is not primarily a question of whether the system has enough reserves, but of whether smaller banks have the balance-sheet flexibility to absorb outflows without cutting back on credit. The release comes as the Senate returns from its two-week recess and is set to resume CLARITY Act discussions.

Senate Banking Committee Chair Tim Scott has yet to set a date for the crypto bill’s markup. However, there are expectations that it could hold by the end of this month, especially if the banks and the crypto industry can reach a compromise on the stablecoin yield text.