Crypto Legislation Poised for Committee Vote this Week

The Senate's Digital Asset Market CLARITY Act has entered its most consequential phase, and for the banking industry, the debate has moved well beyond cryptocurrency market structure. The central issue now is whether Congress will create a regulatory framework for digital assets that preserves the distinction between regulated bank deposits and nonbank stablecoin products - or whether the final bill will allow crypto firms to offer products that function like bank accounts without being subject to the same supervision, capital, liquidity, consumer protection, Bank Secrecy Act, or Community Reinvestment Act obligations.

This week, Senate Banking Committee leadership released updated legislative text ahead of a scheduled committee markup tomorrow. The bill is intended to clarify jurisdiction between the SEC and CFTC, create rules for digital commodity exchanges, brokers, dealers, and intermediaries, and establish a broader framework for digital asset markets. The draft also includes several provisions that matter directly to banks, including anti-money laundering obligations for certain crypto firms, rules for decentralized finance platforms, treatment of tokenized securities, and limits on stablecoin rewards. Reuters reported that the bill would classify digital commodity exchanges, brokers, and dealers as financial institutions under the Bank Secrecy Act, subjecting them to anti-money laundering, customer identification, and due diligence requirements. That is an important recognition that firms performing financial intermediary functions should not be allowed to operate outside the core safeguards that apply across the financial system.

For banks, the most important fight remains stablecoin yield. The revised language would prohibit rewards on idle stablecoin balances that closely resemble bank deposits, but would allow rewards tied to transaction-based activity, such as using a stablecoin for payments. The SEC, CFTC, and Treasury would then be required to issue joint rules implementing that provision. OBL remains concerned that this distinction between "idle" balances and "transaction-based" rewards could become a significant loophole. If a crypto exchange or affiliated platform can design rewards around payment activity, volume, wallet usage, or other behavioral triggers, the product could still function economically like an interest-bearing deposit substitute.

Since the updated language was released, OBL has intensified its advocacy. We have warned Senate Banking leaders that stablecoin yield, or incentives that act like yield, could reduce U.S. deposits and weaken banks' ability to extend credit. OBL and all 50 state associations issued a joint letter emphasized that deposits support lending and economic growth nationwide, and that ambiguous statutory language could encourage customers to shift funds from the banking system into stablecoin platforms. The trades also cited research suggesting that widespread adoption of yield-bearing stablecoins could reduce consumer, small business, and agricultural lending by one-fifth or more.

The banking industry is not opposing innovation or digital asset legislation outright. Rather, the industry's position is that Congress must draw a clear line between payment stablecoins and deposit-like products. The letter said Senators Thom Tillis and Angela Alsobrooks are pursuing the right policy goal by trying to prohibit yield and interest on stablecoins, but that the current public language "falls short" and must be strengthened. Our message is straightforward: if stablecoins are to be used as payment instruments, they should not also become high-yield, uninsured, lightly regulated substitutes for bank deposits. Please follow this link to send an advocacy message to our Senators encouraging them to limit stablecoin yield.

There is now an amendment directly aimed at this issue. Senators Jack Reed and Tina Smith have filed an amendment to tighten limits on stablecoin interest payments and reflect banking industry concerns. That amendment appears to be the clearest banking-priority amendment currently in play. It would force senators to decide whether to side with the banking industry's push for stronger deposit-protection language or the crypto industry's effort to preserve more flexibility around rewards and incentives.

The amendment process has also become much larger and more unpredictable. New reporting indicates the Senate Banking Committee could review more than 100 proposed amendments during the markup, with many filed by Democratic members, including more than 40 from Senator Elizabeth Warren. That volume of amendments creates both opportunity and risk. On the positive side, it gives banking advocates a pathway to strengthen stablecoin yield restrictions, improve AML standards, narrow DeFi loopholes, and preserve securities-law treatment for tokenized securities. On the negative side, it also creates room for unrelated financial services amendments that could harm banks if they are attached to a must-pass or high-profile crypto package.

One issue we are watching closely is the possibility of a credit card interest rate cap or similar consumer-credit price control being offered as an amendment, a formal 10% credit card rate-cap amendment has not been formally filed to CLARITY. However, the risk is real because the 10 Percent Credit Card Interest Rate Cap Act remains active. This is exactly the kind of unrelated anti-bank policy that could be floated during a large amendment process.

Other amendments likely to matter for banks include proposals around DeFi, AML, wallet providers, tokenized securities, and software developer exemptions. The current bill would treat certain insufficiently decentralized platforms as financial institutions if they retain meaningful control, special privileges, or the ability to block users. That concept is important because it prevents firms from claiming "decentralization" while still operating with centralized control and avoiding the compliance obligations that apply to banks and other regulated financial intermediaries. The bill also clarifies that tokenizing a security does not exempt it from securities laws, which is an important principle for preventing regulatory arbitrage between traditional finance and blockchain-based products.

Where things go from here likely depends on whether the Reed-Smith approach, or similar bank-supported language, can gain traction during markup. If the committee adopts stronger stablecoin yield restrictions, the bill would move closer to a framework banks could potentially live with. If the Tillis-Alsobrooks compromise remains largely unchanged, the banking industry will continue pressing the issue as the bill moves forward. Either way, the markup will be a key test of whether Congress is willing to modernize digital asset regulation without undermining the deposit base that supports lending in communities across Ohio and the country.

For OBL members, the takeaway is clear: this is no longer just a crypto bill. It is a banking, payments, credit availability, and financial stability bill. OBL will continue working with the Senate to support responsible innovation while opposing loopholes that would allow nonbank crypto firms to offer deposit-like products without equivalent oversight. We will also continue monitoring the amendment process closely for unrelated anti-bank proposals, including any effort to attach credit card rate caps, interchange restrictions, or other policies that would reduce access to credit or weaken the traditional banking system.