CLARITY Act Could Unlock 11 Crypto Activities for US Banks Under Senate Plan

The Congressional Research Service reports on opportunities that would be created for US lenders under the CLARITY Act as reported by the Senate and passed by the House in H.R. 3633. 

A Sept. 30 Congressional Research Service report enumerates 11 ways in which digital asset activities could be permitted for US lenders. These include underwriting and trading digital assets.

CRS said the Senate version would allow banking companies and credit unions to act in certain ways without maintaining the distinction between insured banks and subsidiary companies under common ownership. Certain actions allowed under the Senate version are not currently permitted for banks. 

Read More: CLARITY Act Stalls in Senate as Lummis Blames Democrats for Failed Crypto Vote

Under current law, banks can underwrite and trade limited types of securities. Under the Senate version, banking companies and credit unions could underwrite and trade more types of digital assets.

House and Senate CLARITY Act Versions Take Different Paths

The House bill is more limited. It would permit banks to apply blockchain and other digital technologies to existing activities. Other crypto activities would be authorized for nonbank subsidiaries of financial holding companies.

The Senate-passed bill would allow 11 activities for banks and credit unions. According to CRS, the Senate bill makes no distinction between activities classified as the “business of banking” and activities classified as “financial in nature.”

Sen. Cynthia Lummis has stated that the bill would enable US banks to buy and store Bitcoin and increase demand for Bitcoin. These predictions about rising Bitcoin prices have not been proven.

The Senate did not move H.R. 3633 forward for consideration on Sept. 15, as a cloture vote of 49-50 did not give the bill the 60 votes needed for cloture. While this vote was not final action on the bill, senators later said that further discussions on the bill remain possible.

Stablecoin Rules Advance as Crypto Market Structure Remains Unsettled

The debate included concerns about stablecoin rewards. Banking groups objected that stablecoin rewards resemble and compete with bank interest payments, potentially reducing bank deposits and loans. Attorneys general from several states objected to the bill on the grounds that it might interfere with state regulation of securities.

Meanwhile, the Fed is moving forward with implementation of the new GENIUS Act. In a Sept. 24 proposal, the Fed suggested rules that would require reserve-backed support for payment stablecoins issued under supervision. 

Acceptable backings for payment stablecoins would include short-term Treasury securities and other high-quality liquid assets. Other proposed rules for payment stablecoins include capital and risk-management standards.

A second proposal from the Fed would create an application process for bank holding companies under Fed supervision that want to authorize subsidiaries or affiliates to issue payment stablecoins. Applications would include business and other information and documents. The proposal includes provisions for appeals and other final decisions.

Read More: CLARITY Act Stalls. Paul Atkins and Michael Selig Move Ahead With New Crypto Rules

Current compliance obligations are not impacted by inaction on the CLARITY Act. Responsible cryptocurrency businesses should continue to comply with other BSA, customer identification, sanctions, transaction monitoring, and suspicious activity reporting requirements.

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