Bank trade groups say Senate stablecoin reward fix ‘falls short’ amid deposit protection concerns

Major banking trade groups said a proposed fix to a key sticking point in passing crypto market structure legislation “falls short.”

On Monday, the American Bankers Association, Bank Policy Institute, Consumer Bankers Association, Financial Services Forum and Independent Community Bankers of America — which represent an array of asset managers, insurance firms among other financial firms — released a statement responding to the latest legislative language.

The statement comes just days after Sens. Angela Alsobrooks, D-Md., and Thom Tillis, R-N.C., finalized a compromise to end the months-long dispute that involved the White House, banking lobby and the crypto industry.

The latest language blocks “covered parties”  from paying any form of interest or yield to U.S. customers solely for holding stablecoins, or in any manner “economically or functionally equivalent to the payment of interest or yield on an interest-bearing bank deposit.” That prohibition does not extend to “activity-based or transaction-based rewards and incentives” tied to bona fide activities. 

“Senators Tillis and Alsobrooks are seeking to achieve the correct policy goal — prohibiting the payment of yield and interest on stablecoins; however, the proposed language falls short of that goal,” the bank trade groups said on Monday. “It is imperative that Congress get this right.”

Banking groups have spent the past year pushing back on provisions in a 2025 stablecoin law that prohibit issuers from paying interest directly but leave room for platforms like Coinbase to offer rewards. They argue such incentives could pull deposits away from traditional banks, particularly community institutions. Crypto firms counter that restricting rewards would hamper innovation.

The issue has faced repeated setbacks as lawmakers attempt to advance broader crypto market structure legislation following the House’s passage of Clarity last year. The Senate Banking Committee had scheduled a hearing in July, but canceled it at the 11th hour when major crypto exchange Coinbase pulled its support, in part because of stablecoin reward language. However, the exchange signed off on the latest version.

A larger crypto bill would regulate the industry as a whole on the federal level, mainly through divvying up oversight between the Securities and Exchange Commission and the Commodity Futures Trading Commission. 

Additional challenges

The bill still faces additional challenges, including how to address crypto-related conflicts of interest tied to President Donald Trump and concerns around illicit finance, all amid limited Senate floor time.

The groups noted specific concerns with how exchanges could offer interest through membership organizations and allowing rewards to be calculated by “reference to duration, balance and tenure.” 

“Overtly incentivizing the idle holding of payment stablecoins for extended periods of time, and for specific balances, would negate the goals of the upfront prohibition (to deter deposit flight) while tying rewards directly to how much/long customers hold payment stablecoins in wallets or exchanges,” they said.  

The bank trade groups said they plan to continue to work with lawmakers.

“We will be sharing our detailed suggestions for strengthening the proposed language with lawmakers in the coming days, and we will continue to work in good faith to help Congress embrace innovation while protecting the deposits that drive local lending and economic activity in their communities,” they added.

Later on Monday, Sen. Tillis said he and Sen. Alsobrooks worked with all stakeholders, including the bank industry, for months. 

“The result is a substantially improved, consensus-based product,” Tillis said in a post on X. “Our compromise prohibits stablecoin rewards from resembling interest on bank deposits, our core concern over deposit flight.”

The compromise also gets the ball rolling on a bipartisan path forward to pass crypto market structure legislation, he said. 

“Some in the banking industry may not want either of these things to happen, and we respectfully agree to disagree,” Tillis said.

Updated at 3 a.m. UTC on May 4 to include comments

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