Killing The CLARITY Act Won't Save Community Banks

Senator Cynthia Lummis (@SenLummis) is pushing back on one of the loudest arguments against the Digital Asset Market CLARITY Act: that payment stablecoins will drain deposits from community banks.

The Deposit Data Does Not Support the Fear

Lummis points to Bank of America data showing household deposits rising across income groups this year, and to federal figures that undercut the narrative of deposit flight. The FDIC's first quarter 2026 Quarterly Banking Profile confirms that domestic deposits increased for a seventh consecutive quarter, rising $389.7 billion, or 2.1 percent, during the period. That run of growth stretches back through six prior quarters of consecutive gains recorded in earlier FDIC profiles.

For Lummis, the numbers make the case plainly: deposits are not leaving the banking system because of stablecoins.

What Section 404 Actually Says

Much of the dispute centres on Section 404 of the CLARITY Act. Banking trade groups, including the American Bankers Association, the Independent Community Bankers of America, and 76 state banking associations, have argued in a joint letter to Senate leaders that ambiguities in the provision could let stablecoins function as deposit substitutes, even if the intent is to prohibit that outcome.

Lummis disagrees with that reading. Section 404 bars stablecoin issuers from paying anything that resembles interest, including disguised rewards, and prohibits marketing stablecoins as deposits or as FDIC-insured products. She argues the bill is stricter than current law, not weaker. The section, as written after a bipartisan compromise between Senators Thom Tillis and Angela Alsobrooks, bans covered parties from paying returns solely for holding payment stablecoins or for providing a yield equivalent to bank deposit interest, while preserving narrowly defined activity-based rewards tied to actual platform use.

Banking groups remain unconvinced. The coalition has warned that stablecoin arrangements could still function as deposit substitutes in practice, and that the credit flowing through community banks, which funds home loans, small-business lending, and agricultural financing, depends on keeping those deposits local.

Lummis counters that gutting the CLARITY Act would not solve that problem. She argues that long-run bank consolidation, not stablecoins, is the structural threat to community lenders, and that scrapping the legislation would only preserve a broken status quo rather than address the forces actually shrinking the number of independent local banks.

Sources:
FDIC Quarterly Banking Profile, First Quarter 2026
The Block: US Banking Groups Urge Senate to Strengthen Stablecoin Provisions in CLARITY Act
BeInCrypto: 78 Banking Groups Push Senate to Rewrite CLARITY Act Section 404