The Ongoing Lack of Clarity
Clarity Act fails 49-50: What the Senate vote means for stablecoin rewards and bank deposits
Summary: On Tuesday, September 15, the Senate voted 49 to 50 against opening debate on the Digital Asset Market Clarity Act, eleven votes short of the sixty it needed. The House passed its version 294 to 134 fourteen months ago.
The day before the vote, Senators Lummis, Boozman and Scott released the final text, which gave the Treasury secretary "new authority to prevent deposit flight tied to payment stablecoins."
The same day, eight national banking groups wrote to Senate leaders that "a circuit breaker that activates only after substantial deposit flight has already occurred is not a safeguard at all." Four days earlier, the American Bankers Association (ABA), the Independent Community Bankers of America (ICBA) and nearly 80 state bankers associations had sent the Senate line edits to the bill's stablecoin rewards section.
On Wednesday, the heads of the SEC and CFTC said they'd write the market rules themselves.
Thesis: Most of the coverage treated Tuesday as a loss for crypto and a win for its opponents. I think the more useful way to read it is through one section of a very long bill, Section 10404, because that section was the only place Congress was going to answer a question that matters to anyone who runs payments, deposits or a treasury product: can a platform pay you for holding a dollar token?
How did we get to where we are now? Last year's stablecoin law banned issuers from paying interest and said nothing about the exchanges and wallets that hand the token to customers.
Those platforms pay rewards on balances, which from inside a bank looks like a savings account with no bank attached. Section 10404 was where that gap would close, and the final text closed it halfway: a ban on paying people purely for holding, a carve-out for rewards calculated on balance and time, and an emergency switch for the Treasury secretary.
The banks rejected the halfway version in writing, twice in five days. Then the bill failed, mostly over an unrelated fight about presidential ethics, and took all three pieces down with it.
So the banks that wanted a stricter ban now have no ban on platforms at all. The platforms that wanted their rewards written into statute have them by default. So now the question moves to agency rules that the next administration can rewrite.
The payment token has a law. The return on the payment token is unwritten.
What last year's law left open
The GENIUS Act, Public Law 119-27, signed July 18, 2025, tells a dollar-token issuer how to behave. Hold reserves in cash and short Treasuries, one for one. Don't call the token insured. And don't pay holders "any form of interest or yield."
Daniel McGlynn
That last rule binds the issuer. It doesn't bind the exchange where you keep the token.
This matters because issuers and exchanges share money. An issuer earns interest on the Treasuries backing the token, passes a cut to the platforms that distribute it, and the platforms pass some of that to customers as rewards.
The customer sees a dollar balance that pays a few percent a year. The issuer has paid no interest to any holder. Everyone has complied with the statute, and the thing the statute was written to prevent has happened anyway.
Banks noticed. A bank's business is borrowing from depositors cheaply and lending the money out at a higher rate, and the cheapest deposits are the ones that sit in checking accounts earning close to nothing.
A dollar token that pays a few percent and moves at any hour is aimed squarely at those balances. When bankers say "deposit flight," that's what they mean: money leaving the accounts that fund local lending.
The Office of the Comptroller of the Currency saw the gap too. The OCC is the Treasury bureau that charters and supervises national banks, and GENIUS made it the licensing regulator for federally chartered stablecoin issuers, so it writes the rules that turn the statute into practice.
Its proposed GENIUS rule this spring would presume an issuer is breaking the interest ban if it has an arrangement with an affiliate or related third party to pay yield. That's stricter than the statute, and it still doesn't reach an independent platform paying rewards out of its own pocket. Comptroller Jonathan Gould has said the final rule will be out by November.
Section 10404 split the difference
The Clarity Act was mostly about other things: which tokens are commodities, which agency watches the trading venues, how software developers are treated. Section 10404 rode along inside it because the stablecoin fight had nowhere else to go.
On paper, it answered the question with a no. No covered party could pay interest or yield to a customer "solely in connection with the holding of such recipient's payment stablecoins," or in a way "economically or functionally equivalent" to interest on a bank deposit. So far that's a win for the banks. Then paragraph (3)(B) permitted "consideration, rewards, or benefits" that are "calculated by reference to a balance, duration, tenure."
A reward calculated on how much you hold and how long you've held it is a fair working definition of interest, which is why the final text likely added a backstop.
Within an eighteen-month window after enactment, if the Treasury secretary found that stablecoin rewards had caused a "substantial detrimental impact" on deposits at community banks under $10 billion in assets, regulators would have to write rules restricting them. Secretary Bessent promised to use it: "If stablecoins cause harm to community banks, I will not hesitate to use these tools."
Compare that with the rest of the stack and the design looks odd. The token itself is licensed at the front door, with reserves and redemption rules set before a single dollar is issued. The return on the token would have been policed at the back door, by one official's written finding, after the money had already moved.
The banks said no, in line edits
The September 10 letter, addressed to Senators Thune and Schumer and signed by ABA, ICBA and the state associations, asks for three changes.
Strike the word "solely," so the ban covers rewards connected to holding even when they're dressed up with some other activity. Replace "economically or functionally equivalent" with "substantially similar," a looser test that's easier for a regulator to meet. And delete paragraph (3)(B) entirely.
Four days later the eight national groups, from the Financial Services Forum's giants to the National Bankers Association's minority-owned banks, sent the second letter. They endorsed the bill's distinction between yield and transaction rewards, said the text had "loopholes and avenues for the prohibition to be easily evaded," and dismissed the circuit breaker in the sentence quoted above.
The banks accept a dollar token that moves money. They want a statute saying only an insured deposit may pay you for sitting still. That's the old arrangement with a new instrument bolted on, and they were candid about it.
The White House answered with arithmetic. The Council of Economic Advisers' model, first published in April and updated this month with a reply to the trade groups, finds that banning stablecoin yield would raise bank lending by $2.1 billion, or 0.02 percent, and community bank lending by $500 million, while costing households $800 million a year in returns they'd no longer get.
Patrick Witt, who runs the president's digital assets council, put it less politely on X: "If the deposit flight myth were real, it would have already occurred."
The scale supports him today. The Bank of England's Carolyn Wilkins put stablecoins in circulation at "roughly $300 billion" in a speech on Tuesday. The Fed's H.8 release has U.S. commercial bank deposits at $19.5 trillion for August. That's about a dollar and a half of tokens for every hundred dollars of deposits, and most of those tokens aren't sitting in American retail wallets.
Forty-nine to fifty
Then the vote happened, and almost none of it was about Section 10404.
NPR's account has Democrats, led by Elizabeth Warren, objecting that the bill's ethics title did too little to stop officials from profiting on crypto, in a year when the president disclosed $1.4 billion in family crypto earnings.
Four Republicans voted no: Collins, Hawley, Moran and Tillis. Eighteen state attorneys general, including the Republican AGs of Kansas and Ohio, had written the Banking Committee the day before that the bill would weaken their power to chase fraud. The community banks were one current among several.
Whatever sank it, the effect on the rewards question is the same. The "solely" ban doesn't exist. Paragraph (3)(B) doesn't exist. The circuit breaker doesn't exist. What exists is GENIUS, which binds issuers, and an OCC proposal that reaches issuers' affiliates and partners.
A platform paying rewards on dollar-token balances this morning is doing what it was doing last Monday, under the same law. The banks spent five days arguing that half a ban was worse than useless, and got to find out what none looks like.
Banks have run this play before, and lost it
In the 1970s a Federal Reserve rule called Regulation Q capped the interest banks could pay on savings at 5.25 percent and barred interest on checking accounts altogether.
Inflation pushed market rates past 10 percent. Money market funds appeared, bought Treasury bills and commercial paper, passed the yield through, and let customers write checks against the balance.
A Fed staff note published in May, by Sam Hempel, JP Perez-Sangimino and Jessie Jiaxu Wang, tells the rest with stablecoins explicitly in mind. "By year-end 1982, MMF assets had grown from virtually nothing to about $220 billion," around 15 percent of bank deposits. Banks argued the funds would starve local lending. The funds argued they were a cash-management tool. Washington never wrote a statute restricting the substitute. It took the cap off the banks instead, in laws passed in 1980 and 1982, and when banks were finally allowed to offer money market deposit accounts in December 1982, they "attracted over $300 billion into these accounts" within three months.
Two things carry over. The substitute grew inside a gap between two rulebooks, which is where stablecoin rewards sit now, and the fight ended when banks were allowed to compete on yield, which is what tokenized deposits are for.
One thing doesn't carry over, and it cuts against the platforms. Money market funds lived under one securities regime. Dollar tokens sit across a payments statute, two market regulators, fifty state attorneys general, and bank supervisors who control who gets an account at the Fed. There are more places for a gate to go up, and the platforms don't get to pick which.
The honest case against this read
The strongest objection is that I'm writing an obituary for a bill that isn't dead.
Tillis's no vote came with a motion to reconsider, which lets Republicans bring the bill back. JPMorgan's analysts, quoted in The Block, noted that GENIUS also failed its first cloture vote before passing 68 to 30. They also called the window "extremely narrow and only getting narrower," with about two and a half weeks of Senate floor time before the midterms. I'd call a revival this year unlikely and a 2027 reintroduction close to certain. If it returns, Section 10404 returns with it, and everything above describes an interlude.
The second objection is that the default isn't as friendly to platforms as I've made it sound. The OCC's final rule could widen "related third party" until it swallows most commercial distribution deals, since nearly every large platform paying rewards has a revenue arrangement with an issuer.
If that happens, the banks get most of what they asked for without a vote, from an agency, by November. That's a real possibility and it's why the rule is the first thing on the watch list.
The third is scale, and it cuts both ways. A dollar and a half per hundred is too small to threaten anyone's funding this year. It's also roughly where money market funds stood a few years before they reached 15 percent. What keeps me on this side of the argument is that the people with the most to lose have now twice told the Senate, in line edits, exactly which words they're afraid of. Lobbyists don't mark up paragraph (3)(B) over a rounding error.
What to watch
The OCC's final GENIUS rule, promised by November. Read the definition of the arrangements that trigger the presumption against issuers. If it names revenue-sharing distribution agreements, the rewards question has been answered by an agency and the Clarity text no longer matters much.
Whether the motion to reconsider gets used before the Senate leaves for the midterms, and whether any returning text changes the three phrases the banks flagged. "Solely" surviving or not tells you who won.
What the SEC and CFTC actually publish. Chairman Paul Atkins said the SEC will act "with or without legislation." CFTC Chair Mike Selig said his agency is "locked in and ready to ship."
JPMorgan has issued a caution: agency rulemaking "is less durable than legislative statutes since the agency itself can repeal or amend its rules in subsequent administrations and is vulnerable to courts."
The Fed note reports that roughly half of large banks surveyed are prioritizing tokenized deposits. A bank dollar that moves at any hour and pays interest inside the insured perimeter is the 1982 answer, and it needs no act of Congress.
Strategic implications
If you're building. GENIUS is the only durable federal statute you've got, so design to it. Reserves, redemption and sanctions controls should look familiar to a bank examiner. If your product only works when idle balances earn a reward, you're selling a policy position, and your roadmap now has an OCC rule and a midterm election on it.
Build the version that survives if rewards get restricted, and treat the reward as margin you may have to give back. The developer protections in the final draft, already narrowed to civil liability, protect no one until they're enacted.
If you're allocating capital. Pull apart three things the week's headlines fused. The payment token is statutory and pays its holder nothing. The platform reward is legal by omission and one agency rule from repricing. The bank deposit is insured, defended by every banking trade group in the country, and about to get a tokenized sibling.
Any model that assumes a 2026 Clarity Act needs redoing around agency timelines. And check how much of a distribution platform's revenue is its share of an issuer's reserve income, because that's the line the OCC is drawing on.
If you write policy. The bill carried three different problems and the least related one sank it. How a dollar token is designed, including whether anyone may pay a return on it, is a money and credit question that already has a statute to amend. How trading venues are run is a market-structure question. Whether writing software makes you a money transmitter is a liability question, and it draws fire from prosecutors and state AGs wherever it's tucked.
The circuit breaker was an honest admission that deposit substitution is the live issue. It was also the weakest way to act on it: a finding made after the harm, by one official, on a timer. Congress can define the substitute up front, as GENIUS did for issuers, or let the banks compete on yield, as it did in 1982. Waiting for the flight and then writing a memo isn't a third option worth keeping.
Daniel McGlynn
Last week's issue
Sources
[1] U.S. Senate. Roll Call Vote 234, 119th Congress, 2nd Session, September 15, 2026. "On Cloture on the Motion to Proceed (Motion to Invoke Cloture: Motion to Proceed to H.R. 3633)." Yeas 49, Nays 50, Not Voting 1. https://www.senate.gov/legislative/LIS/roll_call_votes/vote1192/vote_119_2_00234.htm
[2] Office of Senator Cynthia Lummis. "Lummis, Boozman, Scott Release Final Clarity Act Text," September 14, 2026. https://www.lummis.senate.gov/press-releases/lummis-boozman-scott-release-final-clarity-act-text/
[3] American Bankers Association, Independent Community Bankers of America and state bankers associations. Letter to Senators Thune and Schumer on Section 10404, September 10, 2026. Source of the quoted bill text and the three requested edits. https://www.aba.com/-/media/documents/letters-to-congress-and-regulators/ltrsenateamendclarity20260910.pdf?rev=d8a4226c0f9d49e2aed31aa5a990e3a5
[4] ABA Banking Journal. "ABA, state associations offer language to strengthen Clarity Act," September 10, 2026. Source of "nearly 80" state associations. http://bankingjournal.aba.com/2026/09/aba-state-associations-offer-language-to-strengthen-clarity-act/
[5] American Bankers Association and seven other national banking groups. Joint letter on the Clarity Act, September 14, 2026. https://www.aba.com/advocacy/policy-analysis/joint-letter-on-clarity-act-sept
[6] ABA Banking Journal. "ABA, banking groups warn revised Clarity Act fails to protect community banks," September 2026. Circuit-breaker mechanics: eighteen months, "substantial detrimental impact," community banks under $10 billion. http://bankingjournal.aba.com/2026/09/aba-banking-groups-warn-revised-clarity-act-fails-to-protect-community-banks/
[7] CoinDesk, Helene Braun. "Banks escalate stablecoin rewards fight as Senate prepares for a Clarity Act vote," September 14, 2026. Bessent quote. https://www.coindesk.com/policy/2026/09/14/banks-escalate-stablecoin-rewards-fight-as-senate-prepares-for-a-clarity-act-vote
[8] Public Law 119-27, the GENIUS Act (S. 1582), approved July 18, 2025. https://www.govinfo.gov/app/details/PLAW-119publ27
[9] Perkins Coie. "Stablecoin Interest, Yield, and Rewards: OCC Proposes Sweeping Regulations Under the GENIUS Act," 2026. GENIUS section 4(a)(11) and the proposed rebuttable presumption at 15.10(c)(4). https://perkinscoie.com/insights/update/stablecoin-interest-yield-and-rewards-occ-proposes-sweeping-regulations-under
[10] Office of the Comptroller of the Currency. News release 2026-69, August 19, 2026. Comptroller Gould on a final GENIUS rule by November. https://www.occ.gov/news-issuances/news-releases/2026/nr-occ-2026-69.html
[11] Council of Economic Advisers. "Effects of Stablecoin Yield Prohibition on Bank Lending," April 2026, FAQ updated September 2026. https://www.whitehouse.gov/research/2026/09/effects-of-stablecoin-yield-prohibition-on-bank-lending-26b6/
[12] Crypto Times. "White House's Patrick Witt Calls Bank 'Deposit Flight' Claim a Myth Ahead of Clarity Act Vote," September 15, 2026, quoting Witt's September 14 post on X. https://www.cryptotimes.io/2026/09/15/white-houses-patrick-witt-calls-bank-deposit-flight-claim-a-myth-ahead-of-clarity-act-vote/
[13] Bank of England. Carolyn A. Wilkins, "Money and power: lessons from history for stablecoins and US dollar dominance," Queen's University Belfast, September 15, 2026. https://www.bankofengland.co.uk/speech/2026/september/carolyn-wilkins-speech-at-queens-university-belfast
[14] Federal Reserve Board. H.8, Assets and Liabilities of Commercial Banks in the United States, release of September 18, 2026. Deposits, all commercial banks, seasonally adjusted, August 2026: $19,539.7 billion. https://www.federalreserve.gov/releases/h8/current/default.htm
[15] NPR, Rafael Nam. "A Trump-backed crypto bill just suffered a bruising defeat in the Senate," September 15, 2026. https://www.npr.org/2026/09/15/nx-s1-5968711/clarity-act-crypto-senate-vote
[16] New York State Office of the Attorney General. "Attorney General James Calls on Congress to Preserve States' Ability to Protect Americans from Cryptocurrency Scams," September 14, 2026. https://ag.ny.gov/press-release/2026/attorney-general-james-calls-congress-preserve-states-ability-protect-americans
[17] Federal Reserve Board, FEDS Notes. Sam Hempel, JP Perez-Sangimino and Jessie Jiaxu Wang, "Banks in the Age of Stablecoins: Lessons from Their Historical Responses to Financial Innovations," May 1, 2026. https://www.federalreserve.gov/econres/notes/feds-notes/banks-in-the-age-of-stablecoins-lessons-from-their-historical-responses-to-financial-innovations-20260501.html
[18] The Block, Yogita Khatri. "JPMorgan says Clarity Act 'not fully dead,' but passage window 'extremely narrow,'" September 16, 2026. https://www.theblock.co/news/regulation/2026-09-16-jpmorgan-clarity-act-crypto-bill-415280
[19] The Block, Jason Shubnell. "'Go time': SEC, CFTC prepare to push crypto rules as Clarity Act stalls in Senate," September 16, 2026. https://www.theblock.co/news/regulation/2026-09-16-go-time-sec-cftc-prepare-push-crypto-rules-clarity-act-stalls-senate-415281