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Nearly every state banking association in the country just teamed up to tell the Senate that stablecoin rewards programs are a threat to community banking. Seventy-seven state banking associations, backed by the American Bankers Association (ABA) and the Independent Community Bankers of America (ICBA), sent a letter to Senate leadership on September 10 requesting amendments to the CLARITY Act that would effectively ban rewards tied to stablecoin balances or holding duration.
The target, though never named quite so bluntly, is obvious: Coinbase’s USDC rewards program, which pays users for simply holding the dollar-pegged stablecoin. The banking lobby wants that kind of incentive treated the same way regulators treat interest on deposits, meaning it shouldn’t exist outside the traditional banking system.
What the banking lobby wants changed
The letter zeroes in on two specific provisions. The coalition is requesting amendments to Section 10404(c)(1) and the outright deletion of subsection 10404(3)(B) of the CLARITY Act.
In plain terms, the existing bill language appears to leave room for stablecoin issuers to offer “activity-based rewards” that banking groups argue function as de facto interest payments. The coalition wants that loophole sealed shut.
The banking groups claim there could be “real-world consequences” if stablecoins successfully entice deposits away from traditional institutions. Those consequences, they argue, include reduced credit availability for mortgages and small business loans, the bread and butter of community banking.
This isn’t their first attempt. A nearly identical effort in July 2026 saw 76 state associations send a similar letter. The September push adds one more state association to the coalition, suggesting the campaign is gaining, not losing, momentum as the Senate approaches a cloture vote.
The CLARITY Act’s winding path
The CLARITY Act has been moving through Congress at a pace that could generously be described as deliberate. The Senate Banking Committee advanced the bill with a 15-9 bipartisan vote back in May 2026, positioning it as the most comprehensive attempt yet to build a regulatory framework for digital assets in the US.
The core philosophical disagreement is straightforward. Banking groups believe stablecoins should function primarily as transactional tools, digital cash for moving money quickly and cheaply. They should not, in this view, serve as store-of-value products that compete with savings accounts.
Why this matters for stablecoin markets
USDC sits at the center of this fight for good reason. Circle’s dollar-pegged stablecoin and its associated rewards programs represent exactly the kind of product that blurs the line between crypto and traditional finance.
If the Senate adopts the banking coalition’s proposed amendments, the immediate impact would fall on the attractiveness of yield-bearing stablecoin products. Without the ability to offer balance-based or time-based rewards, issuers and platforms would need to find other ways to incentivize holding, or accept that some portion of their user base will migrate back to traditional bank products offering FDIC-insured interest.
The timing adds another layer of pressure. With the Senate approaching a cloture vote, the window for amending the bill is narrowing. The banking lobby’s decision to escalate from 76 to 77 state associations and to send a second letter within two months signals that they view this as a now-or-never moment.
Community banks, which number in the thousands across the US, have historically relied on local deposits to fund lending. If even a modest percentage of those deposits migrated to stablecoin products offering comparable or superior returns without the friction of traditional banking, the impact on local credit markets could be meaningful.
Disclosure: This article was edited by Editorial Team. For more information on how we create and review content, see our Editorial Policy.
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