Eight banking trade groups urged Senate leaders on Monday to tighten the Clarity Act's restrictions on stablecoin rewards, arguing that exceptions written into the bill could allow interest-like payments that pull deposits away from banks.

In a joint letter to Senate leaders John Thune and Chuck Schumer, the groups said they could not support the latest revisions to the Clarity Act concerning rewards for transactions involving stablecoins—tokens typically pegged to the dollar—and sought tighter restrictions on payments tied to how much stablecoin customers hold or how long they hold it. The revised text draws a line between rewards tied to using stablecoins in transactions and payments based on the size or duration of a customer's holdings.

"We support this distinction in principle, although we believe that the way the current legislative text is drafted provides loopholes and avenues for the prohibition to be easily evaded that would still allow interest and interest-like payments to be made on stablecoin balances," the groups wrote.

Signatories include the American Bankers Association, the Bank Policy Institute, and the Independent Community Bankers of America, which together represent large banks and community lenders. The letter lands ahead of a key Senate procedural vote scheduled for Tuesday, handing senators the objections as they weigh whether to advance the bill. It follows the release of a revised version of the Clarity Act, which would establish federal rules for digital assets and clarify the responsibilities of regulators.

The trade groups asked lawmakers to remove the word "solely" from a restriction on payments connected with holding stablecoins, arguing that the word narrows the prohibition so that interest-like payments escape it whenever holding is one factor among several. They also want to replace the bill's equivalence standard with a "substantially similar" test, broadening the restriction to capture incentives that resemble deposit interest.

A separate request would delete language allowing otherwise permissible rewards to depend on a customer's balance, the duration of their holdings, or their tenure.

"Given that interest payments are often calculated by reference to duration, balance and tenure, this subsection appears to contradict the initial prohibition," the groups wrote.

Banks argue that such incentives could attract money they would otherwise use to fund mortgages, farms, and small businesses. The letter says community and mission-driven lenders could be particularly exposed, though it provides no estimate of potential deposit outflows or evidence that the predicted reductions in lending have occurred.

The groups also rejected a proposed deposit-flight "circuit breaker," describing it as a mechanism that would let regulators respond only after substantial outflows had already taken place.

"A circuit breaker that activates only after substantial deposit flight has already occurred is not a safeguard at all," the groups wrote. "Congress should address this risk upfront by ensuring the Clarity Act prohibits payment stablecoin rewards and incentives that function like deposit interest, rather than waiting for harm to banks, borrowers and communities before regulators are empowered to respond."

The letter renews demands first made by six banking trade groups in May, including restrictions on rewards tied to account balances and adoption of a "substantially similar" standard. The dispute has since spread to senators' home states, where community bankers have pressed for tighter restrictions while crypto advocates have rallied support for the bill.

Crypto firms counter that stablecoin rewards should remain available and that the industry needs clearer federal rules.