US Banking Groups Challenge Effectiveness of Clarity Act's Deposit Shield

Eight U.S. banking groups have stated that the deposit shield provision in the Clarity Act is not an effective protective measure, according to a report. Cryptocurrency journalist Ellyner Tert noted that these banking associations argued in a letter sent to Senate leadership that the mechanism would only function after large-scale deposits had already exited institutions.

The final draft of the Clarity Act, released by Republican senators on April 14, allows Treasury Secretary to activate a block device restricting stablecoin payouts if significant deposits flow out of local banks due to payment stablecoins. Block.com reported that this mechanism would apply for 18 months after the law takes effect.