In a report published Thursday, Reuters said the long-anticipated crypto market structure legislation, known as the CLARITY Act, may be at risk of not being signed into law in 2026. The uncertainty comes as opposition from the banking sector intensifies, particularly over key provisions tied to stablecoin regulation.
Deadlock In Crypto Legislation
Per the report, the legislation has run into a fresh stalemate after banks declined to support a compromise proposal advanced by the White House. That breakdown in negotiations has cast serious doubt on whether Congress can move the bill forward before the legislative window narrows ahead of the midterm election season.
Banks have objected to provisions that would permit stablecoin issuers and other crypto firms to offer yield-bearing products and customer rewards. Lenders argue that such incentives could siphon deposits away from traditional banks, making it more difficult for them to fund loans and support credit creation.
Related Reading
Crypto companies, for their part, maintain that the ability to offer rewards is essential to attract users and remain competitive. They argue that prohibiting such incentives would amount to an anti-competitive restriction designed to protect incumbents.
In an attempt to break the deadlock, the White House stepped in last month to broker a compromise. The administration proposed allowing stablecoin rewards in limited contexts, such as for peer-to-peer (P2P) payment activity, while prohibiting rewards on idle balances.
Four individuals familiar with the private negotiations said the proposal was intended to strike a balance between innovation and deposit stability. Crypto firms have reportedly accepted that compromise. However, banks have signaled they still cannot support it.
Banking Sector Seeks Stricter Reward Rules
Two sources told Reuters that lenders want far stricter limits on the types of activities eligible for rewards. A senior White House official indicated that banks remain concerned that even the narrower framework could accelerate deposit flight.
A banking industry source added that some lenders believe the permitted activities under the compromise would still meaningfully weaken deposit bases.
Several senators are said to back the banking sector’s position, and industry representatives believe they may be able to secure more favorable terms with that political support.
Beyond the stablecoin dispute, the bill faces additional political hurdles. Lawmakers are divided over provisions related to ethics and illicit finance.
Time Running Out For CALRITY Act’s Approval
Time is another significant obstacle. Senate floor time is limited, particularly as lawmakers prepare to leave Washington in the summer to begin campaigning for the midterm elections.
Adrian Wall, managing director of the Digital Sovereignty Alliance, a pro-crypto advocacy group, said the window for passage is rapidly closing. If the bill is not approved and sent to the President by July, he argued, it will become increasingly difficult to revive momentum before the elections.
Related Reading
The political calculus could become even more complicated after November. If Democrats gain seats in Congress, prospects for passing crypto-friendly legislation could diminish further.
Geopolitical developments are adding further uncertainty. According to Brian Gardner, chief Washington strategist at Stifel, the war in Iran is making it even more challenging for Congress to devote attention to crypto regulation this year.
In a note published Tuesday, Gardner wrote that the legislative calendar is increasingly working against the bill. “The calendar is becoming the enemy of this bill,” he said.
Featured image from OpenArt, chart from TradingView.com
Credit: Source link
