Citigroup CEO Endorses Clarity Act but Warns of Stablecoin Rewards Risks for Banks

Jane Fraser, CEO of Citigroup, has expressed support for the CLARITY Act while advocating for modifications to its stablecoin reward regulations, sustaining the banking sector’s primary apprehension regarding the crypto bill ahead of a Senate procedural vote anticipated next month.

In an interview with Fox Business on Thursday, Fraser stated that Citigroup aims for legislators to enhance certain aspects of the bill. Nevertheless, she supports passing a viable version of the legislation, believing it would enhance the financial system.

“We haven’t abandoned our push for improvements, but we are eager to see a robust bill passed,” Fraser commented. “I believe it would be a boon for the system.”

Her backing places Citigroup in a less adversarial stance compared to some larger banks, despite Fraser sharing their concerns about whether crypto platforms should be permitted to offer rewards tied to stablecoins.

Citigroup CEO warns that stablecoin rewards may impact bank deposits

Fraser’s primary apprehension pertains to the potential impact of stablecoin rewards on bank deposits in the U.S., especially for institutions that depend on these funds to finance lending in underserved communities.

“Implementing a reward system for deposits could adversely affect their deposits and, as a result, their capacity to lend and provide credit in parts of the U.S. that crypto may not reach, and frankly, where larger banks also do not have a presence,” Fraser noted. “This is a significant concern for me.”

Banking associations have echoed similar perspectives in negotiations regarding the CLARITY Act. In July, the American Bankers Association, Independent Community Bankers of America, and 76 state banking groups urged Senate leaders to fortify Section 404 prior to the bill’s consideration.

As reported by crypto.news in July, these associations cautioned that vague reward provisions could incentivize customers to transfer funds from traditional banking accounts into payment stablecoins, thereby diminishing the deposits available for community lenders.

The contention partially arises from the structure of stablecoin rewards. The GENIUS Act, enacted in 2025, prohibits payment stablecoin issuers from directly providing interest or yield to holders. However, crypto exchanges and other service providers have utilized reward programs that ultimately benefit users through arrangements not directly offered by the stablecoin issuer.

Banking associations contend that customers might perceive little practical differentiation between the interest earned from a bank and the rewards obtained from maintaining stablecoins on a crypto platform.

CLARITY Act compromise permits activity-based rewards

Senators Thom Tillis, R-N.C., and Angela Alsobrooks, D-Md., have endeavored to address the contention through compromise language that distinguishes between passive yield and rewards linked to actual platform engagement.

The suggested framework prohibits platforms from distributing rewards merely for holding stablecoins. However, it still allows certain incentives connected to transactions, payments, and other qualifying activities.

This compromise language was circulated among crypto and banking representatives earlier this year following an agreement in principle reached by Tillis and Alsobrooks in March. The draft prohibited passive yield while maintaining activity-based rewards linked to payments, transfers, or platform usage.

A revised 309-page version published by the Senate Banking Committee in May preserved this basic structure, allowing activity-based stablecoin rewards while banning passive yield for merely holding the asset.

This language was developed after prolonged disagreements between banks and crypto firms concerning whether third-party rewards would undermine existing restrictions placed on stablecoin issuers.

Banking groups remained unsatisfied after the compromise surfaced. The American Bankers Association, Bank Policy Institute, Consumer Bankers Association, Financial Services Forum, and Independent Community Bankers of America expressed in May that the amended provisions still failed to adequately safeguard deposits.

These groups argued that incentives calculated based on factors such as balances or holding durations could function similarly to deposit interest, even if framed as rewards.

Conversely, crypto companies argue that imposing restrictions extending beyond passive interest would hinder platforms from rewarding customers for legitimate activity.

Faryar Shirzad, Chief Policy Officer at Coinbase, remarked during the May negotiations that banks had secured tighter restrictions while the compromise allowed for rewards tied to the actual usage of crypto platforms and networks.

Conflict over stablecoin yields has created divisions between banks and crypto firms

This dispute has emerged as one of the most enduring issues surrounding the CLARITY Act, with banking organizations warning about potential deposit losses, while crypto firms strive to maintain rewards that do not equate to passive interest.

Earlier this year, banking groups intensified their lobbying efforts as lawmakers advanced the legislation toward Senate consideration. An American Bankers Association campaign dispatched thousands of messages to Senate offices advocating modifications to the stablecoin provisions.

Bank of America CEO Brian Moynihan previously estimated that up to $6 trillion could eventually transition from bank deposits into stablecoins under a regulatory framework that permits the tokens to compete more directly for consumer cash.

The banking sector’s concerns also touch upon the implications for lending associated with such outflows. Banks utilize deposits as a funding source for mortgages, business loans, and other forms of credit, while stablecoin reserves are typically held in cash, short-term U.S. Treasuries, and similar liquid assets.

Representatives from the crypto industry dispute the extent of the risk. In April, the White House Council of Economic Advisers countered the deposit argument, estimating that banning stablecoin yield would increase traditional bank lending by approximately $2.1 billion, or about 0.02% of total loans.

The council projected that 76% of the additional lending linked to a yield ban would benefit large banks, challenging claims that the restrictions were primarily necessary to safeguard smaller community institutions.

Brian Armstrong, CEO of Coinbase, also contended that banks were attempting to restrict competition posed by stablecoins. During negotiations, he accused larger banks of working to prevent consumers from benefiting from returns generated by stablecoin reserve assets.

Under the 2025 GENIUS Act framework, issuers are required to maintain qualifying reserves for payment stablecoins and are prohibited from directly paying interest to holders. Platforms like Coinbase have facilitated rewards through separate programs, making the treatment of third-party incentives a pivotal topic in the CLARITY Act discussions.

Jamie Dimon has adopted a more stringent stance on the CLARITY Act

Jamie Dimon, CEO of JPMorgan Chase, has taken a more aggressive position against the legislation as it stands.

In a Fox Business interview in May, Dimon stated that banks would resist the CLARITY Act, as he believed its stablecoin provisions allowed crypto firms to offer interest-like returns without equivalent protections imposed on banks. He indicated that the banking sector would persist in opposing the bill, even if it ultimately faced defeat.

Dimon also criticized Armstrong’s lobbying efforts during the interview, labeling the Coinbase CEO “full of sh–” after the host referenced Armstrong’s assertion that he represented the crypto industry’s perspective.

Fraser’s remarks position Citigroup in favor of passing the bill while seeking adjustments to the same issue that has largely fueled the banking sector’s opposition.

The next procedural examination is expected upon lawmakers’ return from the Senate’s August recess. Senate Majority Leader John Thune has slated a cloture vote for September 15, pushing the initial vote into September after previous delays.