By Hannah Lang
May 11 (Reuters) – U.S. senators are set to consider long-awaited legislation that would create a regulatory framework for cryptocurrency on Thursday, potentially ending a deadlock over the bill that pitted crypto companies against U.S. banks.
The bill, dubbed the Clarity Act, would, if signed into law, clarify financial regulators’ jurisdiction over the burgeoning sector, potentially boosting digital asset adoption.
U.S. Senator Tim Scott, chairman of the Senate Banking Committee, said on Friday the panel would hold an executive session on May 14 at 10:30 a.m. (1430 GMT) in the Dirksen Senate Office Building in Washington, D.C.
The crypto industry has been pushing for the legislation, saying it is existential to the future of digital assets in the U.S. and necessary to fix core, longstanding problems for crypto companies. Among other things, the legislation would define when crypto tokens are securities, commodities or otherwise, giving the industry legal clarity.
The bill also includes a provision aimed at settling a heated dispute between crypto companies and the banking industry. Under the compromise brokered by Republican Senator Thom Tillis and Democratic Senator Angela Alsobrooks, customer rewards on idle holdings of dollar-backed crypto tokens known as stablecoins would be prohibited, given their resemblance to bank deposits.
Rewards on other activities associated with stablecoins, such as sending a payment, would be permitted. Banking trade groups have pushed back on this provision, saying it gives crypto companies too much latitude and could shift deposits away from the regulated banking system.
Banks have launched a last-ditch effort to peel support from some Republicans on the Senate Banking Committee before the hearing, but it is unclear if they will be able to do so. On Sunday, the American Bankers Association CEO sent a letter to its member bank CEOs urging them to contact their senators for a fix, arguing that without changes the provision could create economic risks.
Lobbyists for the banking industry have been seeking a fix in the Clarity Act to close a “loophole” stemming from legislation signed into law last year that allows intermediaries to pay interest on stablecoins. Banks say this would lead to a flight of deposits from the insured banking system, potentially threatening financial stability.
Crypto companies say that prohibiting third parties, such as crypto exchanges, from paying interest on stablecoins would be anti-competitive.
The industry hopes the Clarity Act gets passed in the coming months before the November midterm elections, in which Democrats could wrest control of the House of Representatives.
The House passed its version of the Clarity Act in July last year, but the Senate needs to pass the bill by the end of 2026 in order to send it to President Donald Trump’s desk.
Many congressional Democrats have been opposed to the bill, arguing it is too weak on anti-money laundering provisions, and that it should do more to prevent political officials from profiting from crypto ventures.
The bill would need support from at least seven Democrats in the full Senate to gain approval.
President Trump courted industry cash, pledging to be a “crypto president,” and his family’s own crypto ventures have helped to propel the sector into the mainstream.
(Reporting by Hannah Lang in New York; Additional reporting by Carlos Méndez in Mexico City; Editing by Tom Hogue)
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