Citigroup’s Jane Fraser backs the CLARITY Act, but stablecoin rewards still have banks rattled
Citigroup CEO Jane Fraser supports moving the CLARITY Act forward, but she still wants lawmakers to tighten the bill’s stablecoin reward rules before it goes any further.
- Fraser backs the CLARITY Act, with changes
- Banks fear stablecoin rewards could pull deposits out of the system
- Crypto firms say activity-based rewards are fair game
- The White House says the lending impact of a yield ban may be tiny
The fight is not really about whether crypto should exist. That battle was lost years ago. The real dispute now is who gets to hold customer balances, who gets to earn the return on them, and whether Congress writes rules that stop obvious games without kneecapping useful payment tools.
Fraser told Fox Business on Thursday that Citigroup wants lawmakers to make “some improvements” to the bill, but not derail it.
“So, we have not given up on pushing to get some improvements made to the bill, but we would like to see a good bill go through, ” Fraser said. “I think it would be excellent for the system.”
Her concern is the same one banking groups have been repeating for months: stablecoin rewards can look a lot like interest, even if they are dressed up in slightly different clothes. If users can earn incentives by holding or parking stablecoins, money could drift out of bank deposits and into crypto platforms.
That matters because deposits are not idle cash sitting in a vault like a dragon hoarding gold. Banks use deposits to fund lending, mortgages, business loans, consumer credit, the whole machinery of credit creation. Fraser warned that if rewards systems start pulling deposits away, banks’ ability to lend could suffer, especially in parts of the U.S. where credit access is already thin.
“If you are having a reward system on deposits, it could have a detrimental impact on their deposits, and therefore their ability to provide lending and access to credit in parts of the U.S. that crypto won’t reach, and frankly, the large banks don’t reach, ” Fraser said. “So, I am worried about it from that perspective.”
That is a more measured stance than the one coming from some other banking chiefs. JPMorgan Chase CEO Jamie Dimon has taken a far harder line against the legislation, while Fraser is trying to shape the bill rather than torch it. In policy terms, that is the difference between “fix this” and “burn it down.”
To understand why this gets so heated, it helps to separate three things that often get blurred together: stablecoins, yield, and rewards.
Stablecoins are crypto tokens designed to track a stable value, usually the U.S. dollar. They are meant to behave more like digital cash than a volatile trading asset.
Yield means return paid simply for holding an asset. That is closer to interest.
Rewards can be tied to actual activity, such as making payments, moving funds, or using a platform. That is the loophole banks worry about and the opening crypto firms want to preserve.
The banking lobby has pushed hard for tighter language. In July, the American Bankers Association, the Independent Community Bankers of America, and 76 state banking associations asked Senate leaders to tighten Section 404 before the bill reached the floor. Their warning was straightforward: do not let stablecoins become a backdoor savings product that mimics bank deposits.
The GENIUS Act, passed in 2025, already prevents payment stablecoin issuers from directly paying interest or yield to holders. But crypto exchanges and other service providers have used reward programs that can pass benefits through to users via structures not directly offered by the issuer itself. That is where the policy fight gets messy fast.
Senators Thom Tillis, R-N.C., and Angela Alsobrooks, D-Md., worked on compromise language that tries to draw a line between passive holding and real usage. Under that framework, rewards simply for holding a stablecoin would be barred, while incentives tied to transactions, payments, or other qualifying activities would remain allowed.
That distinction sounds tidy on paper. In practice, it is exactly where the lawyers and lobbyists start earning their keep. If a platform offers a reward based on balance size or holding time, banks will argue it is interest in disguise. Crypto firms will argue it is just a user incentive for actually using the rail. Both sides have a point, which is why Congress is stuck in the middle trying to draw a line that is both meaningful and survivable.
A revised 309-page version released by the Senate Banking Committee in May kept that basic structure. Banking groups were not impressed. The American Bankers Association, Bank Policy Institute, Consumer Bankers Association, Financial Services Forum, and Independent Community Bankers of America said the revised provisions still did not adequately protect deposits.
Coinbase pushed back. Chief Policy Officer Faryar Shirzad said during the May negotiations that banks had secured tighter restrictions, while the compromise preserved rewards tied to actual use of crypto platforms and networks. Coinbase’s argument is that activity-based incentives are not the same thing as bank interest and should not be treated like a dirty trick just because they compete with legacy finance.
Coinbase CEO Brian Armstrong has also argued that banks are trying to prevent consumers from receiving returns generated by stablecoin reserve assets. That is the broader political subtext here: banks frame themselves as defending the deposit base, while crypto firms frame banks as defending a sleepy, protected business model.
The White House Council of Economic Advisers offered a useful reality check in April. It estimated that banning stablecoin yield would increase traditional bank lending by about $2.1 billion, or roughly 0.02% of total loans. The council also estimated that 76% of the additional lending would flow through large banks.
That does not prove banks are wrong to worry about deposit flight. It does suggest the macroeconomic panic is overstated. A lending boost of 0.02% is not exactly the stuff of system-wide revolution. If that is the best case for the anti-stablecoin-yield camp, the alarm bells may be louder than the actual fire.
Bank of America CEO Brian Moynihan has previously estimated that as much as $6 trillion could eventually move from bank deposits into stablecoins under a looser regulatory structure. That figure should be treated as a warning scenario, not a forecast engraved on stone. Still, it shows how aggressively some banks view the long-term threat.
Fraser’s position is politically important because Citigroup is not just any bank, and her stance is not the same as JPMorgan’s full-throttle opposition. She is signaling support for the bill itself while keeping pressure on lawmakers to close what banks see as a dangerous reward loophole. That makes her a bridge figure of sorts, not a crypto cheerleader, not a full-time blocker.
Senate Majority Leader John Thune has scheduled a cloture vote for Sept. 15. Cloture is the procedural step that helps move a bill forward and limits debate, which matters in the Senate because endless delay is a favorite hobby. Whether lawmakers stick with the current compromise, tighten it further, or punt again will decide how much room stablecoin rewards really get.
The bigger issue is not just the legal wording. It is the underlying economic question: when does a “reward” become a deposit product in all but name? If Congress gets too loose, stablecoin platforms may be able to offer bank-like economics without bank-like rules. If Congress gets too tight, it could choke off useful crypto payment tools and protect incumbents that have coasted for decades on cheap deposits and lousy consumer experience.
That is the real knife fight. Everyone claims they are protecting the user. Banks say they are protecting lending. Crypto says it is protecting competition. Meanwhile, lawmakers are trying to write a rule that stops obvious arbitrage without turning the whole thing into a bureaucratic dog’s breakfast.
Key takeaways
-
Why does Jane Fraser support the CLARITY Act?
She wants the legislation to move forward and sees value in a workable bill. But she also wants changes, especially around stablecoin rewards that could pull deposits away from banks. -
What is the main bank complaint?
Banks fear stablecoin rewards could act like interest and drain deposits. That could weaken lending, especially in communities where credit is already hard to access. -
What does the current compromise allow?
It bars rewards simply for holding a stablecoin, but allows incentives tied to transactions, payments, and other qualifying activity. That is the line banks say is too easy to game. -
Why are crypto firms pushing back?
They argue activity-based rewards are tied to real usage, not passive yield, and that banks are trying to suppress competition. In their view, consumers should be able to earn benefits from using modern payment rails. -
How big is the lending impact, according to the White House?
The White House Council of Economic Advisers estimated banning stablecoin yield would raise traditional bank lending by about $2.1 billion, or 0.02% of total loans. That is a small effect in macro terms, even if banks still see it as a real threat. -
What happens next?
The Senate’s Sept. 15 cloture vote is the next major hurdle. Lawmakers will have to decide whether to keep the current reward compromise, tighten it, or delay the bill again. -
What is the real policy question here?
It is whether platform rewards are close enough to interest that lawmakers should regulate them like deposit products. That is the crux of the fight, and it is still unresolved.
Further reading
A few extra angles on the CLARITY Act fight, bank lobbying, and the stablecoin yield debate.
- Citigroup CEO backs the CLARITY Act but warns on stablecoin rewards
- CLARITY Act: Senate Banking releases new text and markup analysis
- CLARITY Act Section 404: Ban on stablecoin yield
- Citi CEO warns stablecoin interest could curb bank credit
- White House crypto advisor slams banks over stablecoin rewards
- JPMorgan says CLARITY Act faces fading odds as Senate crypto fight intensifies
