Banking Lobby Clashes With White House Over Stablecoin Yield Risks

A fundamental disagreement between the U.S. banking sector and the White House is delaying critical legislation aimed at providing regulatory clarity for digital assets. The American Bankers Association (ABA) has formally rebuffed a report from the Council of Economic Advisers (CEA), arguing that the administration is underestimating the risk stablecoins pose to the traditional banking system. At the center of the conflict is the Digital Asset Market Clarity Act. While the bill seeks to regulate U.S. crypto markets, it has become bogged down by a debate over whether stablecoin issuers should be allowed to offer yields to holders. Bankers fear that such incentives would trigger a mass exodus of deposits from traditional banks to digital assets, effectively creating an economically risky substitute for insured deposits. The ABA warns that without strict prohibitions on yield, the stablecoin market could rapidly expand from its current $300 million scale to as much as $2 trillion. They argue that while leading stablecoin issuers might deposit reserves in banks, these funds would likely flow to the largest institutions, leaving community banks vulnerable to liquidity drains. The legislative stalemate has left the Senate Banking Committee without a scheduled hearing, despite pressure from lawmakers such as Senator Cynthia Lummis, who has urged immediate action on the bill. A proposed compromise would ban yield on holdings that resemble deposit accounts while permitting activity-based rewards, similar to credit card programs, but the banking lobby remains unsatisfied with these safeguards.