Senator Thom Tillis has proposed new language for the CLARITY Act that would allow federal bank regulators to intervene if stablecoin production causes a flight of deposits from all US banks.
Summary
- Thom Tillis proposes the CLARITY “circuit-breaker” rule to deal with stablecoin-related deposit flight.
- Banking groups continue to push for stricter stablecoin regulations despite earlier compromises.
- Cynthia Lummis says the Senate expects to release the text of the CLARITY Act within days.
According to a report from Punchbowl, the North Carolina Republican has proposed adding a “circuit-breaker” provision to the Senate’s crypto market structure bill after concerns from banking groups continue to dominate discussions on stablecoin regulations.
The proposal would authorize regulators, including the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC), to intervene if they determine that stablecoin-related activity is causing deposits to leave the banking system at a broader level.
The latest proposal returns attention to one of the most contested sections of the CLARITY Act as lawmakers work to release a Senate text before the August recess.
It also comes after previous negotiations led by Tillis and Senator Angela Alsobrooks produced a compromise that allows crypto firms to offer only work-based rewards rather than unlimited yields on stablecoins.
Banking groups continue to demand stronger stablecoin language
Despite those compromises, banking organizations remain unconvinced that the latest framework adequately protects the average depositor. As previously reported by crypto.news, several banking organizations argued that the current wording of the bill leaves room for stablecoin issuers to offer incentives that would encourage customers to move money away from bank accounts.
According to those banking groups, the language governing valid rewards remains unclear and creates uncertainty about how regulators will interpret future stablecoin products. Community banks have been vocal in warning that the widespread migration of deposits to productive digital assets could reduce funding available for lending and other banking activities.
Tillis’ proposed method of breaking the circuit appears to be designed to address those concerns without outright banning stablecoin rewards. Under the framework outlined by Punchbowl, regulators would have the authority to act only after identifying evidence of a system-wide deposit flight rather than imposing an outright ban in advance.
The banking debate continues along with another controversy that continues to complicate Senate deliberations. Several Democratic lawmakers pushed for ethics provisions tied to President Donald Trump’s business interests before agreeing to move the legislation forward.
Earlier this week, Senator Elizabeth Warren urged her colleagues to include ethics protections in the bill, a development that coincided with a decline in market expectations for the legislation’s passage.
The Senate is preparing to release the text of the legislation
New guidance on the bill’s timeline came during an interview with FOX Business, where Senator Cynthia Lummis said the Senate expects to introduce the text of the CLARITY Act in the next few days.
Speaking during the interview, Lummis said the law is intended to strengthen consumer protection, help law enforcement fight illegal money, and keep digital goods markets operating within the United States. He also pointed out that Senate leaders are working to bring this measure to the floor before lawmakers leave Washington for the August break.
His comments follow previous reports indicating that the Senate leadership is looking at a floor vote before the end of July if negotiations are not concluded. Lummis noted, however, that the scheduling decision ultimately rests with Senate Majority Leader John Thune, who controls when legislation is brought before the full chamber.
While supporters continue to push for the measure before recess, the Senate’s final text must still iron out disagreements over stablecoin legislation, bank protections and ethics provisions before it can secure the bipartisan support needed to move it forward.
