U.S. bank groups say Senate stablecoin reward fix falls short as deposit risks persist

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Senate stablecoin reward fix

Highlights

U.S. bank groups, including the American Bankers Association and Bank Policy Institute, said revised Senate stablecoin bill language still allows stablecoin-related interest-like rewards.
The draft legislation bars interest payments on stablecoin holdings but permits activity-based or transaction-based rewards, which banks argue could still prompt deposit flight from traditional institutions.
The stablecoin rewards debate has delayed broader crypto regulation, with a key July Senate Banking Committee hearing canceled after Coinbase withdrew support over the language, despite backing the revised bill.

Senate compromise faces bank industry pushback

As reported by The Block, the American Bankers Association, Bank Policy Institute, Consumer Bankers Association, Financial Services Forum and Independent Community Bankers of America said on Monday that revised Senate language does not fully block stablecoin-like interest payments. Their statement follows a compromise finalized by Senators Angela Alsobrooks and Thom Tillis after a months-long dispute involving the White House, banking lobby and crypto industry.

The latest draft bars covered parties from paying any form of interest or yield to U.S. customers solely for holding stablecoins, or in a way that is economically or functionally equivalent to interest on an interest-bearing bank deposit. But the restriction does not apply to activity-based or transaction-based rewards tied to bona fide activities.

The banking groups said the proposal aims at the right policy outcome but still leaves openings that undermine that objective. They pointed in particular to concerns that exchanges could provide interest through membership organizations and structure rewards by reference to duration, balance and tenure.

Deposit protection concerns shape broader crypto bill debate

Bank trade groups have spent the past year opposing provisions in a 2025 stablecoin law that prevent issuers from paying interest directly while still leaving room for platforms such as Coinbase to offer rewards. They argue those incentives could accelerate deposit flight from traditional banks, with smaller community institutions seen as especially exposed, while crypto firms say tighter limits would curb innovation.

The stablecoin reward issue has already complicated efforts to move a wider federal crypto market structure bill that would divide oversight between the Securities and Exchange Commission and the Commodity Futures Trading Commission. A Senate Banking Committee hearing scheduled in July was canceled after Coinbase withdrew support in part over the reward language, although the exchange has backed the latest version.

The legislation still faces other hurdles, including debate over crypto-related conflicts of interest tied to President Donald Trump, illicit finance concerns and limited Senate floor time. The banking groups said they plan to send lawmakers more detailed proposals in the coming days while continuing to press for changes they say would protect deposits that support local lending and economic activity.

In our earlier article, we covered the Digital Asset Market Clarity Act compromise that sought to settle the stablecoin yield debate by barring issuers from paying yield on idle balances while still allowing rewards tied to real usage and transaction activity. We also noted that the update improved sentiment around U.S. digital-asset regulation and helped lift crypto-linked stocks such as Circle and Coinbase as investors anticipated clearer rules.

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