134 bank leaders have urged U.S. Senator John Thune (R-SD), Majority Leader of the U.S. Senate, and U.S. Senator Charles Schumer (D-NY), Minority Leader of the U.S. Senate, to revise Section 10404 of the CLARITY Act.

Section 10404 of the crypto legislation places restrictions on paying interest or yield on payment stablecoins. The banking executives want lawmakers to strengthen the provision so companies cannot work around the prohibition through rewards, incentives, or other arrangements that create similar economic benefits for holding stablecoins.

The bank leaders stated:

“We therefore urge the Senate to incorporate the targeted Section 10404 changes recommended by our state bankers associations before final passage.”

“We therefore urge the Senate to incorporate the targeted Section 10404 changes recommended by our state bankers associations before final passage.”

“If stablecoin products are permitted to attract and retain balances through interest-like rewards or other holding-based incentives, the local funding base that supports this lending could be weakened by hundreds of billions,” the group warned.

In the letter, the signatories said deposits form the basis for lending to families, small businesses, farmers, and local employers. They argued that clear rules would allow payment stablecoins to develop while preserving the funding channels that support community lending. That framing places the dispute at the center of a larger policy question in the U.S. crypto market: how to permit payment stablecoin use without blurring the line between a payments tool and a product designed to compete for balances.

The dispute reflects a broader debate over the role stablecoins should play in financial markets. Bankers say payment stablecoins should remain focused on transactions rather than become products intended to attract long-term holdings.

The banking industry has previously raised concerns about stablecoin yield as digital asset companies and policymakers examine how rewards, incentives, and reserve structures could affect competition with traditional financial institutions.

The signatories said that incentives tied to balances, holding periods, or account duration could replicate features of interest-bearing products, creating the need for clearer boundaries in the CLARITY Act.

The issue has also appeared in discussions over the bill’s treatment of stablecoin incentives, with the CLARITY Act stablecoin rewards debate highlighting disagreements over how regulators should define prohibited yield arrangements.

Bank leaders said deposits remain a major source of funding for mortgages, business expansion, agricultural operations, and community investment. They argued that stablecoin products built around holding incentives could alter those funding flows.

The debate follows broader industry concerns about stablecoin deposit risks as financial institutions assess how digital assets may compete with traditional banking products.

The proposed CLARITY Act revisions would preserve stablecoin payment innovation while limiting structures that bankers believe could replicate deposit-like incentives without the same regulatory framework applied to insured banks. How the Senate finalizes the language on incentives and rewards will shape where lawmakers draw that line for payment-focused digital assets.

The Senate’s final language on stablecoins will determine how payment-focused digital assets operate within the broader U.S. financial system.