Patrick Witt criticized U.S. banks on Monday after 134 banking executives and leaders sent a letter urging the Senate to revise the CLARITY Act’s stablecoin provisions. The dispute centers on Section 10404 of the bill, which restricts interest or yield on payment stablecoins. The banking group asked Senate leaders to tighten the language covering stablecoin rewards.
The letter to Senate leaders
The letter, signed by executives from major and regional banks, was addressed to Senate Majority Leader and Minority Leader. It argues that the current version of the CLARITY Act leaves too much room for stablecoin issuers to offer rewards that function like interest. The bankers want the language narrowed so that any form of yield on stablecoins is explicitly prohibited.
“We believe the bill as drafted could allow stablecoin issuers to circumvent longstanding prohibitions on banks paying interest on certain deposits,” the letter states. The group did not specify which stablecoin projects they worry about, but the concern echoes a broader tension between traditional finance and the crypto industry.
What Section 10404 does
Section 10404 of the CLARITY Act currently bans payment stablecoins from bearing interest. But the banking executives say the definition of “interest” is too narrow. They want the law to cover any reward, rebate, or incentive that could be seen as a substitute for interest. That would include things like staking rewards or loyalty points tied to stablecoin holdings.
The provision is a key part of the bill’s effort to keep stablecoins separate from traditional banking products. Lawmakers have been debating how to regulate the fast-growing stablecoin market, which now holds more than $150 billion in assets. The CLARITY Act is one of several proposals in Congress.
Witt’s criticism
Patrick Witt, a former White House official and now a vocal critic of bank lobbying, said the letter shows banks are trying to kill competition. “They don’t want stablecoins to offer anything that makes them more attractive than a bank account,” Witt said in a statement. “This is about protecting their turf, not protecting consumers.”
Witt pointed out that the banking industry has long opposed any innovation that could reduce its control over payments. He accused the executives of using regulatory arguments to block a technology that could lower costs for everyday people. “The CLARITY Act already has strong consumer protections,” he said. “The banks want to go further and strangle stablecoins before they can grow.”
What’s next for the CLARITY Act
The Senate Banking Committee is expected to mark up the bill in the coming weeks. The banking letter adds pressure on lawmakers to adopt stricter language. But stablecoin advocates, including Witt, are pushing back. They argue that too tight a ban on rewards would make U.S. stablecoins uncompetitive globally.
For now, the fight is over a few lines of text in Section 10404. The outcome could determine whether stablecoins become a mainstream payment tool or remain a niche product. The Senate has not yet scheduled a vote on the CLARITY Act.
