Banks and Crypto Clash Over the CLARITY Act: What Is at Stake?

The Digital Asset Market Clarity Act of 2025 (H.R. 3633), known as the CLARITY Act, seeks to define how cryptocurrencies and digital assets are regulated in the United States. The bill passed the House in July 2025 by a vote of 294–134. However, it now faces delays in the Senate, largely due to a dispute over stablecoin yields.

The debate has exposed a divide between traditional banks and crypto firms. It has also influenced crypto markets, investor sentiment, and expectations for U.S. digital asset regulation.

What Is the CLARITY Act and Why Does It Matter?

The CLARITY Act aims to resolve jurisdictional disputes between the U.S. Securities and Exchange Commission (SEC) and the U.S. Commodity Futures Trading Commission (CFTC). The bill would classify digital assets as either securities or commodities and assign oversight accordingly.

Key provisions include:

• Defining digital asset categories.
• Granting the CFTC authority over spot commodity markets.
• Establishing rules for exchanges and custodians.
• Setting investor protection and anti-money laundering standards.

Companion legislation in the Senate, the Digital Commodity Intermediaries Act (S. 3755), advanced through the Senate Agriculture Committee in early February 2026. However, the broader CLARITY Act remains stalled in the Senate Banking Committee. Planned markups in January were canceled, and no vote has been scheduled as of February 19, 2026.

Supporters argue the bill would end “regulation by enforcement” and provide legal certainty for exchanges, token issuers, and institutional investors.

Why Are Stablecoin Yields Blocking Senate Progress?

The central dispute concerns whether stablecoin holders can receive interest or rewards.

The 2025 GENIUS Act (Public Law 119-27) prohibits stablecoin issuers from paying direct interest. However, it does not clearly prohibit non-issuer affiliates, such as exchanges, from offering rewards programs.

Section 404 of the CLARITY Act draft seeks to close this gap by banning compensation tied to holding stablecoins across all entities, including exchanges and custodians.

White House officials have hosted negotiation sessions on February 3 and February 10, with another meeting scheduled for February 19. A March 1 deadline has been set for compromise language. No agreement has been reached.

Why Do Banks Oppose Stablecoin Yields?

Banking groups, including the American Bankers Association and 52 state associations, argue that yield-bearing stablecoins create systemic risks.

Their arguments include:

Deposit flight risk: Banks estimate that stablecoins offering yields of 3–5% backed by Treasury reserves could attract as much as $6.6 trillion in deposits. They warn that this could reduce lending capacity by up to 25.9%, affecting mortgages, agricultural loans, and small business credit. A study by the Federal Reserve Bank of Kansas City has cautioned that deposit migration during periods of stress could tighten credit conditions.

Regulatory parity concerns: Banks argue that yield-bearing stablecoins resemble bank deposits but lack deposit insurance, capital requirements, and prudential supervision.

Business model impact: Traditional banks typically pay 0.01–0.1% on deposits while earning about 4.5% on Treasuries. Stablecoin rewards distribute reserve income directly to users, potentially compressing bank margins.

Banking groups have urged Congress to prohibit all inducements tied to stablecoin holdings.

Why Do Crypto Firms Support Stablecoin Rewards?

Crypto firms and decentralized finance (DeFi) advocates argue that banning rewards would restrict innovation and weaken U.S. competitiveness.

Coinbase has stated that stablecoin rewards are central to its revenue model. CEO Brian Armstrong withdrew support for the bill in January 2026, calling the draft language a de facto ban on USDC rewards. Coinbase has reported that USDC-related revenue exceeds $1 billion annually.

Circle, issuer of USDC, supports allowing certain reward mechanisms. Chief Strategy Officer Dante Disparte has said rewards help maintain liquidity and on-chain infrastructure.

Crypto advocates argue:

• Treasury-backed yields, such as 3.5% on USDC reserves, provide measurable returns to users.
• Rewards support DeFi liquidity and the adoption of payments.
• Stablecoins are not insured deposits and should not be regulated as such.
• Restrictive rules may drive digital asset activity offshore.

Some industry groups propose retaining exemptions for “non-passive” rewards or commissioning a two-year study on the impacts of deposits.

What Are Policymakers Saying?

Former President Donald Trump has urged swift passage, stating the bill is close to resolution and could end the SEC-CFTC conflict.

CFTC Chair Michael Selig said on February 17 that the legislation is “on the cusp” of becoming law.

Senate Majority Leader John Thune has pledged floor time if the bill advances from committee. Treasury Secretary Scott Bessent has emphasized careful implementation of related laws.

Senator Bernie Moreno predicted in public remarks that passage could occur by April if compromises are reached.

How Has the CLARITY Act Affected Bitcoin and Crypto Markets?

Regulatory uncertainty has contributed to market volatility.

As of February 19, 2026:

• Bitcoin (BTC) fell below $68,000 before recovering to around $69,000.
• Bitcoin ETF products recorded $133.27 million in net outflows over two days.
• Circle-related equity (CRCL) declined 80% from its peak of $62.50.
• Coinbase (COIN) shares fell on concerns about USDC reward revenue.

Polymarket prediction market data showed odds of passage at 71%. Analysts note that clear regulatory authority for the CFTC over spot markets could support institutional adoption. Continued delays may prolong volatility.

What Do Crypto Users and Investors Expect?

Users seek regulatory clarity, stable access to rewards programs, and consistent oversight rules.

Retail investors focus on whether USDC rewards will continue. Institutional firms monitor how the bill defines digital commodities and exchange compliance standards.

On social media platform X, discussions reflect frustration with delays and concern over banking influence. Others emphasize financial stability risks and support limits on yield programs.

The market response suggests participants expect eventual passage but remain cautious about the final language.

What Happens Next for the CLARITY Act?

The March 1 deadline for compromise language is a key milestone. If the Senate Banking Committee does not advance the bill, delays could extend into the election cycle.

If enacted, the CFTC would oversee digital commodity spot markets and intermediaries. That shift would define compliance pathways for exchanges and custodians. If negotiations fail, regulatory uncertainty will likely continue under existing enforcement-driven frameworks.

The outcome will determine whether stablecoin rewards remain part of U.S. crypto infrastructure and how banks compete with blockchain-based payment systems.

Sources:

• Reuters: White House meeting fails to resolve US crypto legislation stalemate
• Federal Register: Genius Act Implementation 
• Yahoo: CLARITY Act Stalls (Again), Bitcoin Crashes, & Circle's Stablecoin Suffers