Banks Warn Crypto Bill Could Squeeze Borrowers

The U.S. Senate Banking Committee voted 15-9 Thursday to advance the controversial, crypto-focused Clarity Act.

The bill, which aims to establish clear and enforceable guardrails for digital asset markets with the aim of protecting consumers and investors, will move toward a full Senate vote although the bill still faces further coordination with other congressional versions.

Supporters say the Clarity Act would add guardrails to help prevent fraud and illicit finance, though critics argue the safeguards remain insufficient.

Crypto firms and venture capitalists are in support of the bill, which creates a regulatory framework for cryptocurrencies, and banking groups oppose the bill. Banks argue the bill’s rewards language could function as interest and drain bank deposits in a threat to local lending.

A May 14 op-ed by economist Andrew Nigrinis in Open Banker focused on how bank deposits, which banks use to lend to local communities, would be impacted if the bill’s disputed rewards language allows crypto-related incentives, though current reporting says the compromise is not meant to permit interest on idle stablecoin deposits.

“Treasury demand for stablecoins may be a worthwhile goal, but it will come at a cost,” Nigrinis concluded. “The policy question is whether a material decline in lending to farms and small businesses is an appropriate price to pay.”

A coalition of six banking associations responded to today’s vote by the Senate Banking Committee with the following statement in a press release.

“The banking industry continues to believe that the Clarity Act should be strengthened further by tightening the prohibition on interest-like rewards for holding stablecoin while also allowing certain payment stablecoin transactions and activities to generate rewards.

“Without the necessary guardrails, stablecoin offerings are expected to draw away bank deposits and threaten local lending and economic activity across the country.”

The American Bankers Association, Bank Policy Institute, Consumer Bankers Association, Financial Services Forum, Independent Community Bankers of America, and National Bankers Association sent out the release.

Law enforcement groups oppose the Clarity Act. These groups are concerned the bill doesn’t do enough to prevent illegal financial transactions through digital assets.

Labor groups such as the AFL-CIO informed the Senators that legitimizing cryptocurrency could impact financial stability including retirement accounts and pensions.

Coinbase, Circle, and Ripple are among the most vocal crypto companies supporting the bill. Venture capital firm Andreessen Horowitz is another supporter of the Clarity Act. The bill also has the support of President Trump and the White House, CNBC reports.

The bill will need to gather support of more Democratic senators as it makes its way to a Senate vote. It needs 60 votes to pass, and Republicans hold 53 seats. The Clarity Act is one of the most significant crypto market-structure bills to advance in the Senate so the final vote will be watched closely.

If the Clarity Act meets its aim to establish clearer rules around digital assets, it may encourage fintech lenders and crypto companies to enter the consumer financial market and this includes the subprime market.

Any effect on subprime credit access remains uncertain and would depend on final rules and how lenders use them.