Banking trade groups are sounding the alarm over the Clarity Act, arguing that its approach to stablecoins contains loopholes that could pull deposits away from traditional banks. That shift, they warn, would weaken banks' ability to lend and threaten broader financial stability.
The core of the criticism
The groups — which represent a wide swath of the banking industry — say the Clarity Act fails to close off pathways for stablecoin issuers to operate in a way that effectively competes with insured deposits. Without tighter guardrails, they argue, customers could move funds from bank accounts into stablecoin products, especially if those products offer higher yields or faster transactions.
At the heart of the complaint is a regulatory gap. The act, intended to bring clarity to digital assets, is seen by the trade groups as creating an uneven playing field. Stablecoins backed by reserves could end up functioning much like bank deposits, but without the same oversight or deposit insurance. That, the groups say, could lure money out of the traditional banking system.
Why deposits matter
Deposits are the lifeblood of most banks. They fund the loans that drive everything from mortgages to small business expansion. If a meaningful chunk of those deposits migrates to stablecoin wallets, banks would have less capital to lend. The trade groups warn that even a gradual outflow could tighten credit conditions and slow economic growth.
Financial stability is another concern. Deposit outflows can trigger liquidity pressures, especially for smaller community banks that rely on local depositors. The groups argue that the Clarity Act, as written, does not adequately account for these risks. They're pressing lawmakers to close the loopholes before the rules take effect.
Stablecoin regulation tension
The criticism highlights a recurring tension in financial regulation: how to encourage innovation without undermining existing safeguards. Stablecoin proponents often argue that the technology can make payments faster and cheaper. But traditional banks and their trade groups counter that the playing field should be leveled — either by subjecting stablecoins to bank-like rules or by making sure the Clarity Act doesn't inadvertently create a backdoor for deposit substitution.
The trade groups have not demanded a complete halt to stablecoin development. Instead, they are pushing for revisions to the Clarity Act that would explicitly prohibit certain activities or require stablecoin issuers to hold reserves in ways that don't drain bank deposits.
What the trade groups want
Specifically, the groups are calling for amendments that would limit stablecoin issuers from offering features that mimic bank accounts, such as interest payments or seamless transfers from bank accounts. They also want clearer definitions to ensure that any entity acting like a bank is regulated like one, regardless of the technology it uses.
Without those changes, they say, the Clarity Act could accelerate a shift away from the traditional banking model — one that has underpinned lending and financial stability for decades. The trade groups are expected to continue pressing their case as the legislative process moves forward, though no specific timeline for revisions has been set.
