US CLARITY Act Draft Would Restrict Stablecoin Yield and Ban Balance-Based Rewards

As the United States advances the Digital Asset Market Clarity Act, or CLARITY Act, to regulate stablecoins, the boundary between traditional finance and cryptocurrency is being redrawn. Banks fear that if the bill allows issuers to offer interest or yield indirectly, payment stablecoins would effectively become substitutes for deposits. That would threaten traditional banks' funding sources and could weaken the banking system's lending capacity, prompting strong resistance and calls for amendments from the traditional financial sector.

On July 13, 2026, the American Bankers Association, the Independent Community Bankers of America and other groups sent a joint letter to Senate leaders seeking revisions to ambiguous stablecoin yield language in Section 404 of the bill. The ICBA warned that failure to close the loophole could drain as much as $1.3 trillion in bank deposits and reduce lending capacity by $850 billion. The bill passed a Senate committee in May, with a hearing scheduled for July 17.

The CLARITY Act aims to establish regulatory responsibilities for the U.S. digital asset market. The dispute centers on whether Section 404 can prevent stablecoins from effectively paying interest through rewards. Banks fear funds could move from FDIC-insured deposits into stablecoins, weakening lending for mortgages, small and medium-sized businesses, and agriculture. The Treasury Department estimates that as much as $6.6 trillion in deposits could be at risk of outflows.

On July 13, the American Bankers Association, the Independent Community Bankers of America and 76 state banking associations urged bipartisan Senate leaders to tighten Section 404. The bill passed the Senate Banking Committee by a 15–9 vote on May 14, but no date has been set for a floor vote. That uncertainty could make it difficult to enact the legislation before the November 2026 midterm elections.

The U.S. Digital Asset Market Clarity Act aims to close a gap left by the GENIUS Act, which restricts issuers from paying interest but does not cover rewards offered by trading platforms. The American Bankers Association spent $56.7 million on lobbying. The banking industry estimates that as much as $1.5 trillion in retail deposits could flow out, while Standard Chartered forecasts a potential $500 billion funding shortfall by 2028.

Section 404(b)(2) of a draft disclosed in March 2026 would prohibit centralized exchanges from paying interest on “idle balances,” potentially ending a model under which Coinbase users earn an annualized yield of about 4% simply by holding USDC. Rewards for activities including payments, transfers, staking, governance and liquidity provision would remain permitted. An April 9 report said USDe could continue offering yield opportunities through staking and delta-neutral hedging, while USDS could do so through revenue sharing under the Sky protocol.

Payment stablecoins are typically redeemable at a fixed value of $1, with issuers profiting from interest earned on reserves. Banks fear deposit outflows if those returns are passed on to holders. The GENIUS Act became law on July 18, 2025, establishing a framework for payment stablecoins. The CLARITY Act would divide oversight between the SEC and CFTC, making the yield dispute a key hurdle to advancing market-structure legislation in the Senate.

The Office of the Comptroller of the Currency unveiled a draft rule on March 2, 2026, that would prohibit permitted issuers from paying interest in cash or tokens solely for holding or using payment stablecoins. Indirect payments through affiliates would also be presumed to violate the rule. The proposal also covers state-regulated issuers overseen by the OCC with more than $10 billion in issuance, and comments are due by May 1. The same day, Senators Thom Tillis and Angela Alsobrooks finalized a compromise on yield provisions in the CLARITY Act.