Banking sector draws a line on stablecoin yield provisions...Deposit outflow debate explodes ahead of bill review

▲ Stablecoin, Cryptocurrency Regulation/AI Generated Image

U.S. banking groups have called for revisions to the compromise related to stablecoin yield payment provisions in the U.S. crypto market structure bill. As the bill prohibits deposit-like interest payments for stablecoins but allows some reward programs, the banking sector expressed concerns that this provision could indirectly permit a yield structure similar to traditional bank deposits.

Bitcoinist reported on May 10 (local time) that U.S. banking trade groups demanded revisions to the stablecoin yield payment provisions in the U.S. crypto market structure bill. This move comes ahead of the bill's review process, expected next week. After months of negotiations, lawmakers, the crypto industry, and the U.S. banking sector had reached a compromise on how to handle stablecoin yield payments under the new regulatory framework.

The core of this compromise is a complete prohibition of passive, deposit-like interest on stablecoins. This was explained as a measure to prevent stablecoins from directly competing with traditional bank deposits. Conversely, rewards linked to actual activities such as staking, trading activities, and liquidity provision are permitted. The bill aims to encourage stablecoins to be used as a means of payment for buying and selling, rather than assets simply held to earn interest.

Banking groups argued that this compromise still leaves loopholes. According to a letter shared by independent journalist Eleanor Terrett on X (formerly Twitter) on May 8, the American Banking Association, Bank Policy Institute, Consumer Bankers Association, Financial Services Forum, Independent Community Bankers of America, and National Bankers Association participated in the demand for revisions.

The demands of these organizations focused on explicitly prohibiting passive interest payments and preventing deposit outflows from traditional financial institutions. Specifically, a textual amendment was proposed in Section 404(c)(1) of the bill, suggesting changing the phrase “functional and economic equivalent” to “substantially similar” when defining passive deposit yields and stablecoin-related yield mechanisms.

The banking sector also recommended the complete deletion of some sub-provisions. They argued that these provisions create ambiguity that undermines the core purpose of the compromise. However, Bitcoinist reported that such revision demands are unlikely to receive significant attention, as lawmakers' focus has largely shifted to other parts of the U.S. crypto market structure bill. Terrett stated that a Senate aide characterized the banking groups' efforts as a weak attempt.

The U.S. Senate Committee on Banking, Housing, and Urban Affairs is scheduled to hold a meeting to review the U.S. crypto market structure bill on May 14 at 10:30 AM (ET). During this process, committee members will examine the bill, discuss amendments, and then decide whether to advance the bill for a full Senate vote.

Even if the bill passes the committee, it will not be enacted immediately. The U.S. crypto market structure bill must pass a full Senate vote, then receive House approval, and subsequently be signed by the President to become law. The banking sector's recent demand for revisions demonstrates that the conflicting interests between the financial industry and the crypto sector regarding how stablecoins might clash with the deposit market remain unresolved.

*Disclaimer: This article is for investment reference only, and we are not responsible for any investment losses based on it. The content should be interpreted for informational purposes only.*