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

On March 5, 2026, the American Bankers Association (ABA) did something rare: before the whole world, it rejected a compromise proposal that the White House had brokered and shuttled around for weeks. Two days earlier, Trump had just publicly warned on Truth Social that banks were “hijacking the bill.”

An industry lobbying organization openly tearing up with the president is not common in U.S. politics. Whatever has made bankers make this kind of decision is definitely not a small matter.

What’s making them so nervous is legislation called the “CLARITY Act” (H.R. 3633, officially titled the “Clarity for the Digital Assets Market Act”).

Why are banks so afraid of this bill? This article will break down the underlying logic step by step for you

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

Executive Summary

• The essence of the “CLARITY Act” is not regulatory reform—it is a redistribution of intermediary power. It grants non-bank institutions (crypto exchanges, DeFi protocols, crypto-native custody providers) an equal federal compliance status to banks, directly shattering the monopoly moat that the banking industry has built over centuries on licensing barriers.

• The core fear driving bank lobbying is “deposit migration.” If stablecoins are allowed to pay yield, there is a transfer risk for up to $6.6 trillion in deposits. Deposits are the raw material for everything a bank does—once deposits are lost, the bank’s lending capacity, net interest margin models, and fee systems will all collapse.

• The “CLARITY Act” precisely targets and dismantles the bank’s threefold moats one by one. Deposit side: the bill gives stablecoins legal status and allows platforms to offer yield. Clearing side: the bill excludes decentralized activities from registration requirements, enabling DeFi to legally bypass bank clearing networks. Custody side: the bill establishes a federal custody-provider framework, $32.5 billion in the custody market opening up to non-banks. With these three cuts stacked together, the banking industry’s monopoly moat is being dismantled systemically.

I. What Is the CLARITY Act—Whose Cheese Does It Move?

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

The bill’s core logic can be summarized in a single 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 (U.S. Securities and Exchange Commission) and the CFTC (U.S. Commodity Futures Trading Commission), effectively playing on a field with no referee.

The bill’s core provisions are divided like this:

The CFTC receives:

Exclusive regulatory authority over spot markets for “digital commodities,” including registration oversight for digital commodity exchanges (DCEs), brokers, and traders.

Assets such as Bitcoin and Ethereum, which are identified as “decentralized and sufficiently mature,” will fall under this framework.

The SEC retains:

Regulatory authority over digital assets deemed to be “investment contract assets”—tokens that have not yet met sufficiently decentralized standards.

But the bill also explicitly lays out a “de-securitization” pathway: issuers can file with the SEC, explaining that the asset has already met—or will meet within four years—the “maturity” standard, thereby exiting the securities framework.

Federal access for non-bank institutions:

This is the clause banks fear most. The bill allows financial holding companies and compliant banks to conduct digital commodity business, and it also allows non-bank institutions to obtain registration as “qualified digital asset custodians,” subject to federal or state-level regulation.

In other words, Coinbase, Ripple, BitGo, and other crypto-native institutions will for the first time have the opportunity to obtain federal licenses on par with traditional banks.

At the same time the CLARITY Act stalls, developments accelerate from another front: within just 83 days, 11 crypto companies—including Circle, Ripple, BitGo, Paxos, and Fidelity Digital Assets—submitted applications to the OCC (Office of the Comptroller of the Currency) for national trust bank licenses.

The banking industry realizes that even if legislation is blocked, the opponent is completing the same playbook through regulatory pathways.

This is the nightmare for the bank lobbying camp:

Once the bill passes, what they will face will no longer be “wild ones in a regulatory gray zone,” but legitimate competitors holding federal licenses, playing by the same rules in the same arena.

II. The Bank’s Threefold Profit Moat: Dissecting the Business Model of a Century-Old Intermediary Tax

To understand why banks cling to this, you must first understand what banks make money from.

In 2024, the U.S. banking industry’s total net profit was $268.2 billion. This money comes from three pillars:

Moat One: Deposit monopoly—capturing the spread

This is the foundation of the bank business model. Banks attract retail deposits at near-zero cost (savings interest rate of 0.5%–2%), then lend out at rates far higher than that (mortgage loans 6%–7%, consumer loans 15%–25%). The spread is the net interest margin (NIM).

In 2024, the U.S. banking industry’s full-year average NIM was 3.22%, meaning each $100 of assets earns a net $3.22 per year. JPMorgan Chase’s 2024 total revenue exceeded $177 billion, and the core driving force is this massive deposit-to-loan spread machine.

The premise of this model is that deposits can only be placed at banks—because there is no substitute.

Moat Two: Payment and clearing licenses—charging tolls

Every bank transfer and every card swipe is backed by a clearing network led by banks. The credit card interchange fee is the most direct expression of this system: merchants pay a fee of 1%–3% per transaction to banks, while consumers are largely unaware.

In 2024 alone, U.S. banks collected approximately $4.88 billion in overdraft fees—only the visible portion; the “toll” system across the entire payments network is far larger than that.

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

Moat Three: Custody qualification barriers—charging for services

The global custody assets under management are about $23 trillion. In the U.S. alone, custody and securities services generated $32.5 billion in revenue in 2022.

Pension funds, sovereign wealth funds, and insurance companies are legally required to keep assets with institutions holding specific regulatory qualifications—and those qualifications are exclusively held by banks and a small number of licensed institutions.

State Street, BNY Mellon, and JPMorgan’s custody businesses are the product of “institutional necessities,” not because they serve best, but because there are no other compliant options.

These threefold moats share a common characteristic: their core competitive advantage is not technology or efficiency, but regulatory barriers. Once the barriers disappear, the competitive advantage disappears as well.

III. How the CLARITY Act Precisely Attacks These Threefold Moats

Here is the most critical causal chain in the whole story.

Every provision of the CLARITY Act precisely dismantles a bank moat.

Attacking Moat One: Stablecoins make “money” bypass bank accounts

Stablecoins are dollar-pegged digital currencies, currently with a total circulation exceeding $230 billion and an average daily trading volume of about $30 billion.

Under the existing legal framework, stablecoins sit in a gray area: they cannot pay interest and cannot substitute for bank deposits. But the CLARITY Act’s legalization of stablecoins changes this equation.

The transmission mechanism looks like this:

First step (Trigger):

The CLARITY Act recognizes the legal status of “Permitted Payment Stablecoins,” while also allowing other intermediary platforms to offer yield or rewards to users holding stablecoins.

Second step (Transmission):

This means users can exchange bank deposits into stablecoins and earn yields higher than bank savings rates on crypto platforms—exactly the “deposit migration” scenario banks fear most.

Third step (Quantified consequences):

An empirical study by the Federal Reserve Bank of New York found that banks already participating in the stablecoin ecosystem (as reserve depository institutions) saw the proportion of their loans to assets decline by about 14 percentage points compared with peer banks, because these banks must hold more liquidity reserves to meet stablecoin redemption demand, which in turn compresses the amount of funds available for lending.

Amplifier:

An independent analysis by Standard Chartered Bank analysts estimated that if the yield provisions are implemented, by 2028 it could lead to $500 billion in deposits moving from traditional banks into stablecoin products.

The ABA further cites research and calculates that in an extreme scenario, up to $6.6 trillion in deposits could be lost, equivalent to eliminating about $1.5 trillion of lending capacity—where small business lending shrinks by $110 billion and agricultural lending shrinks by $62 billion.

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

Although the two numbers use different assumptions, they point in the same direction: deposit outflows are a real structural threat, not empty noise.

Attacking Moat Two: DeFi turns payment and clearing into driverless software

DeFi (decentralized finance) automatically executes financial transactions through smart contracts on the blockchain; it does not need clearinghouses and does not need bank intermediaries.

In 2025, total value locked (TVL) in DeFi is about $270 billion, with a year-over-year growth rate of 31%. More importantly, DeFi’s cross-border remittance settlement speed is 4.3 times that of the traditional SWIFT system.

The CLARITY Act clearly excludes decentralized activities such as “validation nodes” from registration requirements, while preserving regulatory authority over anti-fraud and anti-manipulation.

This means DeFi protocols can operate within a legal framework without paying 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 the moat occurs at the custody layer.

The CLARITY Act establishes a framework for “qualified digital asset custodians,” allowing non-bank institutions to obtain a compliant status through registration. Coinbase, BitGo, and Fidelity Digital Assets are accelerating this process via OCC licensing applications.

Once these institutions hold federal licenses on par with banks, institutional clients (pension funds, sovereign wealth funds) will no longer have a reason to be forced to choose traditional banks to custody their digital assets.

The $32.5 billion U.S. custody industry market will open up to non-banks.

IV. Old Business Model vs. New Business Model: The Fundamental Structural Difference in the Value Chain

The core difference between two financial systems is not the product—it is the necessity of the intermediary layer.

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

When users transfer from A to B, they go through three nodes: “originating bank → clearing network → receiving bank.” Each node charges, and every transaction waits for settlement cycles of T+1 or T+2.

In the new model, A and B interact directly through wallet addresses. Blockchain protocols replace the three intermediary layers, compressing settlement time from “business days” to “seconds,” and reducing cross-border remittance costs from 3%–7% to less than 1%.

The structural difference in the value chain between the two models is, at its core, the difference between whether an intermediary layer exists:

• In the old model, banks are indispensable trust machines.

• In the new model, trust is coded and outsourced to blockchain consensus mechanisms via cryptography.

Banks’ business model is not being overturned—it is being bypassed.

Key Takeaways

By the time we reach here, we can connect all the scattered points into a single line.

The story begins with banks’ business model. Over a century, the core formula for U.S. banking profits has never changed:

Monopoly deposits as raw material → collecting tolls through regulated clearing networks → locking in institutional customers with exclusive custody qualifications.

The $268.2 billion net profit across the industry in 2024 is, in essence, one year’s output from this intermediary monopoly system.

The emergence of crypto technology is the first real threat at the technology level:

• Stablecoins allow “money” not to have to exist inside bank accounts;

• DeFi allows payments and clearing not to have to pass through bank intermediaries;

• Crypto-native custodians allow institutional assets not to have to be held at traditional banks.

These three points directly attack the three main fee-charging nodes in the banking value chain.

Where the CLARITY Act becomes dangerous is that, at the legal level, it legalizes all three of these threats. Once crypto-native institutions obtain federal licenses, the technological threat upgrades into an institutional threat—banks lose their final line of defense, the moat built with regulatory barriers.

This bank lobbying group’s battle to hold the line wins time but loses the long-term picture.

They can slow down legislation, but they cannot stop technological penetration; they can block one bill, but they cannot stop 11 competing opponents from applying for licenses with regulators at the same time.

The real issue has never been whether the CLARITY Act passes—it is that once the value chain of digital-native finance ultimately becomes infrastructure, in which remaining nodes can traditional banks stay truly irreplaceable.