Banks reject U.S. Treasury Secretary Bessent’s CLARITY Act ‘circuit breaker’ – Why?

The latest revised crypto market structure bill, the CLARITY Act, is facing a series of headwinds ahead of today’s cloture vote. 

Despite Republicans’ ethics provisions and U.S. Treasury Secretary Scott Bessent’s proposed ‘circuit breaker’ to stop stablecoin yield risk to deposit flight, the bill still faces uncertainty. 

Banks, state AGs oppose revised CLARITY Act

On the 14th of September, Bessent said he will act swiftly if stablecoins trigger the feared deposit flight among community banks.  

If stablecoins cause harm to community banks, I will not hesitate to use these tools to ensure they remain fully protected.

It’s worth pointing out that this treasury’s authority, or the so-called ‘deposit flight circuit breaker,’ is temporary. It’s activated if the bill passes and lasts only 18 months. 

The offer was meant to calm banks’ opposition to the bill. Unfortunately, the sector, led by eight trade groups, including the Bank Policy Institute (BPI), has outright slammed the temporary fix. 

A circuit breaker that activates only after substantial deposit flight has already occurred is not a safeguard at all.

For his part, White House chief crypto advisor Patrick Witt said the banks have more to lose than crypto firms, especially if the ‘deposit flight myth’ is real. 

The latest draft now also adds a ‘circuit breaker.’ If the Clarity Act fails, banks get none of these protections.

That’s not all, though. The bill’s latest ethics provisions also leave a lot to ‘be desired,’ according to Senate Democrat Reuben Gallego (D-Ariz). In fact, Sen. Elizabeth Warren’s (D-Mass) team also echoed a similar stance, noting that there were still major loopholes in the ethics proposal. 

Committee staff found that these provisions would not prevent the President from making his next $1.4 billion in crypto profits.

Eighteen state AGs (attorneys general) also opposed the bill as drafted, stating that it will ‘muddy the waters’ and make it harder to fight crypto scams. 

Crypto ‘disappointed’ with developer protections

Additionally, the initial developer protections, also known as the Blockchain Regulatory Certainty Act (BRCA), have been limited. According to Jason Somensatto, director of policy at the crypto lobby group Coin Center, the limited version was ‘disappointing.’

Disappointing to see the BRCA protections limited. Still helpful to codify the regulatory protections for developers, but the lack of criminal law protections means Michael Lewellen’s case against DOJ becomes even more important

The Senate is set for a cloture vote (whether to debate the bill) today. If it clears this hurdle, the bill may undergo further amendments before a final Senate floor vote. 

Still, the passage odds surged to nearly 35% but dropped to below 20% as of writing. This meant that the market was still doubtful of the bill’s progress this year. 

Final Summary

• Democrats, 18 state AGs, and banks opposed the revised CLARITY Act draft
• The bill’s passage odds slipped below 20% ahead of the crucial Senate cloture vote