coindesk.com
As early as today, the U.S. Senate could take a crucial step toward setting the rules of the road for the digital economy by taking up the Clarity Act.
It should. Clarity would create a federal framework for cryptoassets and clarify oversight of exchanges, brokers, issuers, and other intermediaries.
The significance of the bill extends well beyond crypto. Done properly, it could help lay the foundation for a more innovative, inclusive, and competitive American financial system.
That prospect has alarmed segments of the banking industry.
For months, the American Bankers Association and other banking groups warned that Clarity could give crypto companies an unfair competitive edge over banks by allowing them to offer stablecoin users rewards that function like interest on deposits. Bankers argue that money will migrate from bank accounts into stablecoins and drain the deposits banks use to finance mortgages, farms, and small businesses.
It is a dramatic story: crypto flourishes, community banks wither, and Main Street starves for credit. The evidence is considerably less histrionic.
The GENIUS Act already prohibits stablecoin issuers from paying interest or yield directly to holders. The remaining complaint centers on rewards offered through exchanges, affiliates, and other intermediaries. As stablecoins proliferate, they might displace some deposits. But the claim that they threaten the foundation of American banking is difficult to square with the available evidence.
The White House Council of Economic Advisers estimated that banning stablecoin yield would increase aggregate bank lending by just 0.02% under baseline assumptions. For community banks, the estimated increase was 0.026%. Other empirical research has found no material impact of stablecoin adoption on community bank deposits.
There are legitimate questions about how a much larger stablecoin market could affect bank funding and financial stability. Policymakers should take them seriously. But regulation should address these proportionately, not protect incumbents from competition.
That’s why the politics surrounding Clarity is particularly strange. Progressives who spent years attacking too-big-to-fail financial institutions are now defending their competitive moat. Meanwhile, Republicans who historically championed open markets now appear receptive to constraining crypto entrants because they might compete too effectively with banks.
The irony is, banks might have the most to gain from Clarity.
There is no unified Wall Street opposition to the bill. BlackRock, Fidelity, Goldman Sachs, and others have supported Clarity. They recognize that blockchain is rapidly integrating into the financial system itself.
Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.