White House Crypto Council Director Patrick Witt has backed new stablecoin rules included in the latest CLARITY Act draft. The changes seek to limit stablecoin rewards while giving the U.S. Treasury more authority if bank deposits come under pressure.
The updated text comes at the same time as a Senate cloture vote, though the legislators remain in discussions on stablecoin returns and bank safeguards.
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Patrick Witt Defends Stablecoin Reward Rules
Witt said crypto companies have offered stablecoin rewards for years without causing the deposit flight feared by banks. He argued that bank deposits have continued rising rather than falling.
“If the deposit flight myth were true, it would have already happened,” explained Witt. He said data available reveals that deposits are trending upward rather than downward.
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Even so, Section 404 of the CLARITY Act limits stablecoin rewards that resemble interest paid on bank deposits. The new draft also introduces a “circuit breaker” based on anticipated deposit flight.
Under the proposed mechanism, the Treasury secretary could impose further restrictions on stablecoin rewards if community banks lose deposits. If widespread deposit flight should occur within 18 months of enactment, the authority would come into effect.
Witt said the compromise still gives banks protections they would not receive if the legislation fails. His remarks followed a series of demands by banking groups for more stringent rules.
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Banking Groups Say CLARITY Act Does Not Go Far Enough
Multiple U.S. banking industry associations have expressed concerns about the new Senate language. They say that stablecoin rewards may still be a direct competitor to bank deposits.
The groups support rules separating payment rewards from interest-like returns. However, they say the draft contains loopholes that could allow similar payments to continue.
They also condemned the proposed Treasury circuit breaker, which has been set to go into effect after losses have been made on deposits.
“A circuit breaker that kicks in once significant deposit trading has taken place is not a protective measure,” the groups said.
Banks want Congress to restrict stablecoin rewards that function like deposit interest before any large shift in deposits occurs. They say potentially fewer deposits could equal fewer loans, particularly at smaller community banks.
Senate CLARITY Act Vote Draws Closer
The stablecoin debate is part of a larger batch of modifications in the updated draft of the CLARITY Act. The Senate text also includes revisions involving exchanges, civil protections, and ethics enforcement.
In addition, President Donald Trump has agreed to language allowing state attorneys general to sue the DOJ and crypto exchanges. The provision would apply if a president or other covered official violates CLARITY Act restrictions.
According to reports, Senate Republicans described the text as their “last, best, and final offer” to Democrats. The updated proposal was released ahead of Tuesdays expected cloture vote.