Banks Push Senate to Amend CLARITY Act Section 404

78 banking groups want the Senate to tighten Section 404, especially around stablecoin yield and the line between that and bank deposits. The outcome could shape the CLARITY Act and the U.S. digital assets market.

Key Takeaways

• 78 U.S. banking groups are urging the Senate to revise Section 404 of the CLARITY Act, with a particular focus on stablecoin yield.
• The banks want to strip out certain wording and narrow the exceptions so the ban cannot be worked around.
• The issue is politically sensitive because, the banks argue, vague rules could move money out of traditional banks and into crypto platforms.

78 American banking groups are pressing the Senate to change Section 404 of the CLARITY Act. In a July 13 letter to Majority Leader John Thune and Minority Leader Chuck Schumer, the American Bankers Association, the Independent Community Bankers of America, and 76 state associations zero in on the rules around stablecoin yield.

The letter lands as the CLARITY Act, introduced in 2025, is being positioned as a broader legal framework for digital assets in the United States. The bill covers exchanges, custody, derivatives, and asset classification, but Section 404 has become one of its most disputed provisions.

What Banks Want Changed

Section 404 bars firms from paying yield simply for holding payment stablecoins or for offering returns that mirror bank deposit interest. At the same time, it does leave room for reward programs tied to transactions or platform activity. The banking groups are now pushing for a narrower version of the language, including removing the word “solely,” deleting the phrases “on a payment stablecoin balance” and “on an interest-bearing bank deposit,” and swapping “economically or functionally equivalent” for “substantially similar.” They also want subsection (3)(B) removed altogether.

The signers say those edits would make it harder for companies to design incentives that sidestep the ban. They also argue that the reward language conflicts with the restriction placed right next to it.

Why This Matters Politically

The banks say they are not opposing innovation or a regulated digital asset market, but they still want tighter guardrails. In the letter, they warn that vague wording could open the door to stablecoin products that function like deposit substitutes in practice. That echoes a broader concern in Washington that money could leave traditional banks and flow into crypto platforms, with knock-on effects for lending to households and businesses.

This fight is not new. Earlier this year, the banking industry raised similar concerns in another letter, while the Consumer Federation of America criticized Section 404 on the grounds that crypto intermediaries could offer yield on stablecoin balances as if they were unregulated savings accounts. The Senate advanced the bill through the Banking Committee on May 15, 2026, but the full Senate outcome is still far from settled.

Pressure on the Senate Is Building

Stablecoin yield is one of three major sticking points holding up the CLARITY Act. Section 604 on developer protections and the ethics rules remain sensitive as well. President Trump has called on senators to move fast, while two other groups, NOBLE and a federal law enforcement association, have backed the bill.

For European crypto watchers, the stakes are worth watching because U.S. rules on stablecoins and yield often shape how exchanges, issuers, and other crypto firms design their products. If the Senate tightens Section 404, it could draw a clearer line between a payment tool and a product that looks more like a savings or deposit account.