In-depth Analysis: Why Are Banks So Afraid of the Clear Crypto Legislation?

Author: Spinach Spinach

On March 5, 2026, the American Bankers Association (ABA) did something rare: it publicly rejected a compromise plan that the White House had negotiated for weeks. Just two days prior, Trump had publicly warned on Truth Social that banks were “hijacking the bill.”

An industry lobbying organization openly tearing its relationship with the President is not common in American politics. What could make bankers make such a decision must be a significant issue.

What is causing them so much anxiety is a piece of legislation called the “CLARITY Act” (H.R. 3633, officially the “Digital Asset Market Clarity Act”).

Why are banks so fearful of this act? This article will break it down step by step from the underlying logic.

“A life-and-death gamble over $6.6 trillion in deposits”

Executive Summary

The essence of the CLARITY Act is not regulatory reform but a redistribution of intermediary rights: it grants non-bank entities (crypto exchanges, DeFi protocols, crypto-native custodians) equal federal compliance status with banks, directly breaking the monopoly moat that the banking industry has built over the past century through licensing barriers.

The core fear of bank lobbying is “deposit migration.” If stablecoins are allowed to pay yields, there is a risk of transferring up to $6.6 trillion in deposits; deposits are the raw material for all of a bank’s business—losing deposits would collapse the bank’s credit capacity, net interest margin model, and fee structure.

The CLARITY Act precisely targets and dismantles the threefold moat of the banks. On the deposit side: the act grants legal status to stablecoins and allows platforms to offer yields; on the clearing side: the act excludes decentralized activities from registration requirements, allowing DeFi to legally bypass bank clearing networks; on the custody side: the act establishes a federal custodian framework, opening the $32.5 billion custody market to non-banks. With these three strikes combined, the banks’ monopoly moat is being systematically dismantled.

I. What is the CLARITY Act—who’s cheese is it moving?

The CLARITY Act (the “Digital Asset Market Clarity Act,” H.R. 3633) is the most significant crypto regulatory legislation passed by the U.S. Congress to date. On July 17, 2025, it passed the House with a bipartisan majority of 294 votes to 134 and is currently stalled in Senate negotiations.

The core logic of the act can be summarized in one sentence: end the regulatory vacuum and clarify who regulates whom.

For a long time, the U.S. crypto industry has existed in a jurisdictional gray area between the SEC (Securities and Exchange Commission) and the CFTC (Commodity Futures Trading Commission), equivalent to playing on a field without referees.

The core provisions of the act are divided as follows:

CFTC obtains:

Exclusive regulatory authority over the spot market for “digital commodities,” including registration and regulation of digital commodity exchanges (DCEs), brokers, and dealers.

Assets like Bitcoin and Ethereum, deemed “decentralized and mature,” will fall under this framework.

SEC retains:

Regulatory authority over digital assets identified as “investment contract assets,” namely tokens that have not yet met full decentralization standards.

However, the act clearly outlines a “de-securitization” pathway—issuers can file with the SEC, indicating that the asset has already or will within four years meet “maturity” standards, thereby exiting the securities framework.

Federal access for non-bank entities:

This is the provision that banks fear the most. The act allows financial holding companies and compliant banks to engage in digital commodity business while also allowing non-bank entities to register as “qualified digital asset custodians,” subject to federal or state-level regulation.

In other words, crypto-native entities like Coinbase, Ripple, and BitGo will have the opportunity for the first time to obtain federal licenses equivalent to those of traditional banks.

While the CLARITY Act is stalled, events are accelerating on another front: in just 83 days, 11 crypto companies, including Circle, Ripple, BitGo, Paxos, and Fidelity Digital Assets, submitted applications for national trust bank licenses to the OCC (Office of the Comptroller of the Currency).

The banking industry realizes that even if legislation is blocked, opponents are completing the same layout through regulatory pathways.

This is a nightmare for the bank lobbying group:

Once the act is passed, they will face not “barbarians in the regulatory gray area,” but formal opponents holding federal licenses and competing under the same rules in the same arena.

II. The banks’ threefold profit moat: dissection of a century-old intermediary tax business model

To understand why banks are so adamant, we must first understand how banks make money.

The total net profit for the U.S. banking industry in 2024 is projected to be $268.2 billion, which comes from three pillars:

Moat One: Deposit Monopoly—earning interest spread

This is the foundation of the banking business model. Banks accept deposits from residents at nearly zero cost (savings rates of 0.5%-2%) and lend them out at much higher rates (mortgage loans at 6%-7%, consumer loans at 15%-25%), with the interest spread being the net interest margin (NIM).

The average NIM for the U.S. banking industry in 2024 is projected to be 3.22%, meaning they net $3.22 for every $100 in assets annually. JPMorgan Chase’s total revenue for 2024 is expected to exceed $177 billion, with its core driver being this massive lending and deposit interest spread machine.

The premise of this model is that deposits can only be held in banks. Because there are no alternatives.

Moat Two: Payment Clearing Licenses—collecting tolls

Every bank transfer and every credit card transaction goes through a bank-led clearing network. The interchange fee is the most direct manifestation of this system—merchants pay banks a fee of 1%-3% for each card swipe, while consumers remain oblivious.

In 2024, U.S. banks collected about $4.88 billion just from overdraft fees; this is only a visible fraction; the entire payment network’s “toll” system is much larger.

The premise of this model is that payments must go through the banking account system.

Moat Three: Custodial Qualification Barriers—earning service fees

The global custody asset scale is approximately $230 trillion, and the U.S. custody and securities services industry alone generated $32.5 billion in revenue in 2022.

Assets from pension funds, sovereign wealth funds, and insurance companies are legally required to be stored in institutions with specific regulatory qualifications—qualifications that are exclusively held by banks and a few licensed institutions.

The custody businesses of State Street, BNY Mellon, and JPMorgan are products of “institutional necessity”: not because they provide the best service but because there are no other compliant options.

These three moats share a common characteristic: their core competitiveness is not technology or efficiency but regulatory barriers. Once the barriers disappear, the competitive advantage vanishes.

III. How the CLARITY Act precisely attacks these three moats

This is the crucial causal chain of the entire story.

Every provision of the CLARITY Act is precisely dismantling one of the banks’ moats.

Attacking Moat One: Stablecoins allow “money” to bypass bank accounts

Stablecoins are digital currencies pegged to the U.S. dollar at a 1:1 ratio, and their total circulation has exceeded $230 billion, with a daily trading volume of about $30 billion.

Under the current legal framework, stablecoins are in a gray area, unable to pay interest or replace bank deposits. But the CLARITY Act’s legalization of stablecoins changes this equation.

The mechanism transmits as follows:

Step One (Trigger):

The CLARITY Act recognizes the legal status of “Permitted Payment Stablecoins” and allows other intermediary platforms to offer yields or rewards to users holding stablecoins.

Step Two (Transmission):

This means users can exchange bank deposits for stablecoins, placing them on crypto platforms to earn higher yields than bank savings rates—this is precisely the “deposit migration” scenario that banks fear the most.

Step Three (Quantified Consequences):

Empirical research from the New York Fed found that banks already involved in the stablecoin ecosystem (as reserve custodians) saw their loan-to-asset ratio drop by about 14 percentage points compared to similar banks—because these banks must hold more liquidity reserves to meet stablecoin redemption demands, which in turn compresses the amount of funds available for lending.

Amplifier:

Standard Chartered analysts independently calculated that if yield provisions are implemented, it could lead to $500 billion in deposits flowing from traditional banks to stablecoin products by 2028.

The ABA further cites research estimating that in extreme scenarios, losses could reach as high as $6.6 trillion in deposits, equivalent to eliminating approximately $1.5 trillion in credit capacity, with small business loans shrinking by $110 billion and agricultural loans shrinking by $62 billion.

The $6.6 trillion figure is an extreme scenario calculation commissioned by the ABA, not a baseline forecast; Standard Chartered’s $500 billion is a more conservative estimate within the 2028 time window.

The two figures differ in scope but point in the same direction: deposit outflows are a real structural threat, not just bluster.

Attacking Moat Two: DeFi turns payment clearing into autonomous software

DeFi (decentralized finance) executes financial transactions automatically through smart contracts on the blockchain, requiring no clearinghouses or bank intermediaries.

In 2025, the total value locked (TVL) in DeFi is projected to be approximately $270 billion, with an annual growth rate of 31%. More importantly, the speed of cross-border remittance settlement in DeFi is 4.3 times that of the traditional SWIFT system.

The CLARITY Act explicitly excludes decentralized activities such as “validator nodes” from registration requirements but retains anti-fraud and anti-manipulation regulatory authority.

This means DeFi protocols can operate within a legal framework without having to pay tolls to existing bank clearing networks.

Attacking Moat Three: Crypto-native custodians will hold federal licenses for the first time

The most direct dismantling of a moat occurs in the custody segment.

The CLARITY Act establishes the “Qualified Digital Asset Custodian” framework, allowing non-bank entities to register for compliant status. Coinbase, BitGo, and Fidelity Digital Assets are accelerating this process through OCC license applications.

Once these entities hold federal licenses equivalent to those of banks, institutional clients (pension funds, sovereign wealth funds) will have no reason to force traditional banks to custody their digital assets.

The $32.5 billion U.S. custody market will open to non-bank entities.

IV. Old business model vs. new business model: fundamental differences in value chain structure

The core difference between the two financial systems lies not in the products but in the necessity of the intermediary layer.

In the old model, each layer is a checkpoint, and each checkpoint incurs a fee.

When a user transfers from A to B, it passes through three nodes: “account-opening bank → clearing network → receiving bank,” with each node charging a fee, and each transaction waiting for T+1 or T+2 settlement cycles.

In the new model, A and B interact directly through wallet addresses, with blockchain protocols replacing the intermediate three-layer structure, reducing settlement time from “working days” to “seconds,” and cutting cross-border remittance costs from 3%-7% to less than 1%.

The difference in value chain structure between the two models fundamentally comes down to the presence of an intermediary layer:

In the old model, banks are indispensable trust machines.

In the new model, trust is codified and outsourced to cryptography through the blockchain consensus mechanism.

The banking business model has not been disrupted but rather bypassed.

Core Conclusion

Having reached this point, we can connect all the dots into a coherent line.

The story begins with the banking industry’s business model. For a century, the core profit formula of the U.S. banking industry has remained unchanged:

Monopolize deposit raw materials → collect tolls through regulated clearing networks → lock in institutional clients with exclusive custodial qualifications.

The projected net profit of $268.2 billion for the entire industry in 2024 is essentially the output of this monopolistic intermediary system operating for a year.

The emergence of crypto technology poses a real threat at the technical level for the first time:

Stablecoins allow “money” not to exist in bank accounts;

DeFi allows payment clearing to bypass bank intermediaries;

Crypto-native custodians allow institutional assets to be stored outside traditional banks.

These three points directly attack the three core fee nodes of the bank’s value chain.

The danger of the CLARITY Act lies in that:

It legalizes all three of these threats at the legal level. Once crypto-native institutions obtain federal licenses, the technological threat escalates to a systemic threat—banks will lose their last line of defense, the moat built by regulatory barriers.

In this battle for the city, the bank lobbying group has won time but lost the long-term landscape.

They can delay legislation but cannot stop the infiltration of technology; they can block one bill but cannot prevent 11 competitors from simultaneously applying for licenses with regulators.

The real question has never been whether the CLARITY Act will pass, but rather, when the value chain of digital native finance ultimately becomes infrastructure, on which nodes can traditional banks still remain irreplaceable.