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: it publicly rejected a compromise plan negotiated by the White House over several weeks. Just two days earlier, Trump had openly warned on Truth Social that banks were “hijacking the bill.”

An industry lobbying organization openly tearing its relationship with the president is uncommon in American politics. There must be significant issues that would lead bankers to make such a decision.

What has made them so anxious is a piece of legislation called the CLARITY Act (H.R. 3633, officially known as the Digital Asset Market Clarity Act).

Why are banks so afraid of this act? This article will break it down from the ground up.

“A life-and-death game 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 gives non-bank institutions (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 a 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 banking operations—losing deposits would collapse banks’ credit capacity, net interest margin models, and fee structures.

• The CLARITY Act precisely targets the threefold moat of banks for dismantling. Deposit side: the act grants stablecoins legal status and allows platforms to offer yields; clearing side: the act excludes decentralized activities from registration requirements, enabling DeFi to legally bypass bank clearing networks; custodial 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.

1. What is the CLARITY Act—who’s cheese has it moved?

The CLARITY Act (Digital Asset Market Clarity Act, H.R. 3633) is the most important piece of crypto regulatory legislation passed by the U.S. Congress to date. It was passed in the House on July 17, 2025, 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 found itself 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 outline the following divisions:

CFTC gains:

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

Assets like Bitcoin and Ethereum, identified as “decentralized and mature,” will fall within this framework.

SEC retains:

Regulatory authority over digital assets deemed “investment contract assets,” which are tokens that have not yet reached full decentralization standards.

However, the act specifies a “de-securitization” path—issuers can file with the SEC to declare that their asset has or will reach “maturity” standards within four years, thereby exiting the securities framework.

Federal access for non-bank institutions:

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 permitting non-bank institutions to register as “qualified digital asset custodians,” regulated at the federal or state level.

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

While the CLARITY Act is stalled, developments have accelerated on another front: within 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 has realized that even if legislation is blocked, competitors are completing the same layout through regulatory paths.

This is a nightmare for the bank lobbying group:

Once the act is passed, they will no longer face “barbarians in the regulatory gray area,” but rather formal competitors holding federal licenses and competing on equal terms in the same arena.

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

To understand why banks are fiercely guarding their position, one must first understand how banks make money.

The net profit of the U.S. banking industry for 2024 is projected to be $268.2 billion, and this money comes from three pillars:

Moat One: Deposit Monopoly—Earning Interest Margins

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

The average NIM for U.S. banks in 2024 is projected to be 3.22%, meaning they net $3.22 for every $100 in assets per year. JPMorgan Chase’s total revenue in 2024 is expected to exceed $177 billion, driven largely by this massive lending margin machine.

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

Moat Two: Payment Clearing Licenses—Charging Tolls

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

In 2024, U.S. banks collected approximately $4.88 billion just from overdraft fees, and that’s just the visible portion; the entire payment network’s “toll” system is much larger.

The premise of this model is: payments must go through the bank 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 revenue of $32.5 billion in 2022.

Pension funds, sovereign wealth funds, and insurance company assets 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 custodial businesses of State Street, BNY Mellon, and JPMorgan Chase 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.

3. How the CLARITY Act precisely attacks these three moats

Here lies the most crucial causal chain of the entire story.

Each provision of the CLARITY Act precisely dismantles one of the bank’s moats.

Attacking Moat One: Stablecoins Allow “Money” to Bypass Bank Accounts

Stablecoins are digital currencies pegged 1:1 to the U.S. dollar, with a circulating total exceeding $230 billion and 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. However, the CLARITY Act’s legalization of stablecoins changes this equation.

The mechanism works as follows:

Step One (Trigger):

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

Step Two (Transmission):

This means users can convert bank deposits into stablecoins and earn yields on crypto platforms that exceed bank savings rates—this is precisely the “deposit migration” scenario that banks fear most.

Step Three (Quantified Consequences):

An empirical study by the New York Federal Reserve found that banks already involved in the stablecoin ecosystem (as reserve custodians) saw their loan-to-asset ratios decline 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 funds available for lending.

Amplifier:

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

The ABA further cites research estimating that in extreme scenarios, the loss of deposits could reach as high as $6.6 trillion, equivalent to wiping out approximately $1.5 trillion in credit capacity, resulting in a decline of $110 billion in small business loans and $62 billion in agricultural loans.

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

While the two figures use different criteria, the direction is consistent: deposit loss is a real structural threat, not just bluster.

Attacking Moat Two: DeFi Turns Payment Clearing into Driverless Software

DeFi (decentralized finance) automatically executes financial transactions through smart contracts on the blockchain, bypassing clearinghouses and bank intermediaries.

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

The CLARITY Act explicitly excludes decentralized activities like “validator nodes” from registration requirements while retaining regulatory authority over fraud and manipulation.

This means DeFi protocols can operate within a legal framework without paying tolls to the 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 in the custodial stage.

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

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

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

4. 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 must pass through three nodes: “Originating Bank → Clearing Network → Receiving Bank,” with each node charging a fee, and each transaction waiting for T+1 or T+2 settlement periods.

In the new model, A and B interact directly via wallet addresses, with the blockchain protocol replacing the three-layer structure in between, compressing settlement time from “business days” to “seconds,” and reducing cross-border remittance costs from 3%-7% to less than 1%.

The difference in value chain structure between the two models essentially boils down to whether the intermediary layer exists:

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

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

The banks’ business model has not been overturned but bypassed.

Core Conclusion

Having read this far, we can connect all the scattered points into a line.

The story starts with the banking industry’s business model, which has not changed over the past century:

Monopolizing deposit raw materials → Charging tolls through regulated clearing networks → Locking 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 intermediary monopoly system operating for a year.

The emergence of crypto technology presents a real threat for the first time on a technical level:

• Stablecoins allow “money” to exist without being in bank accounts;

• DeFi allows payments and clearing without going through bank intermediaries;

• Crypto-native custodians allow institutional assets to be stored without traditional banks.

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

The danger of the CLARITY Act lies in:

It legalizes all three threats at the legal level. Once crypto-native institutions obtain federal licenses, the technical threat escalates to an institutional threat—banks lose their last line of defense, the moat built with regulatory barriers.

The bank lobbying group’s battle for the castle wins time but loses the long-term landscape.

They may slow down legislation, but they cannot stop the infiltration of technology; they may block one bill, but they cannot prevent 11 competitors from simultaneously applying for licenses with regulatory authorities.

The real issue has never been whether the CLARITY Act passes or not, but when the digital-native financial value chain ultimately becomes infrastructure, where can traditional banks maintain irreplaceability?