Financial institutions will continue to face uncertainty over key digital asset issues after a recent legislative defeat.
Last week, the Digital Asset Market Clarity Act failed a procedural vote in the Senate. That means banks and credit unions will remain in limbo over whether they will legally be able to use digital assets for several traditional banking activities in the future. There are also still concerns about deposit flight, as third-party digital asset services continue to take advantage of a legal loophole to provide passive yields on stablecoin holdings.
The 2025 passage of the GENIUS Act forbade stablecoin issuers from paying passive yields on customer holdings. But it did not expressly prohibit third-party digital asset services such as Coinbase from doing so. Banking groups sought to close that loophole to prevent potential deposit flight.
The Clarity Act would have addressed this concern. The legislation “would’ve had much more strict language that would’ve limited the ability for yield to be paid to stablecoin holders,” David Portilla, partner and co-head of the financial institutions group at Davis Polk & Wardwell, said this week during a panel on stablecoin governance. The discussion took place at Bank Director’s 2026 Bank Board Forum in Austin, Texas. “That is now dead.”
Another key provision of the legislation would have provided certainty for banks on the ways they can legally utilize digital assets and the blockchain. While the Office of the Comptroller of the Currency, Federal Reserve and Federal Deposit Insurance Corp. previously clarified banks can utilize those new technologies for activities like payments, lending and custody, the Clarity Act would have enshrined those permissions in federal law. “When you think of those two issues, which I think were core to the banking industry’s concerns about the Clarity Act, one is about competition for the deposit franchise,” Portilla said. “And the other is purely and simply about the ability to actually do the same things that your nonbank competitors are doing.”
The legislation fell 11 votes short of moving to the Senate floor for a full debate. With the midterm elections less than six weeks away, it is unlikely the Clarity Act will be considered again during this session. While the prior regulatory clearance will allow banks to continue utilizing digital assets for those activities, such guidance could change under a new presidential administration in 2029.
Strategies Must Be Considered
Despite all of the future uncertainty, banks still need to have a strategy in case their own customers start asking about digital assets, said Tom Lazard, a principal at Crowe Advisory who was also a panelist during the stablecoin governance session. “If [your] answer is, ‘No, I can’t do this,’ or ‘No, you have to go somewhere else for this,’ what else follows that small ask?” he said. “I do think the risk is real and needs to be considered from that perspective.”
Portilla agreed with Lazard that banks should at least consider the potential for customers to demand these services. “A strategy can be to wait and not do anything right away, but that needs to be a conscious decision,” he said. “The question becomes — when our customers decide to start experimenting with this product, are they going to go to Coinbase or Robinhood or wherever else? And do we lose them little by little?”
In a separate Bank Board Forum session on payment orchestration models, Maf Sonko, head of payments orchestrator for Jack Henry & Associates, went even further. He said financial institutions should ready themselves to allow customers to make payments with digital assets. “I talked about optionality. I focused on the traditional rails,” he said. “But if you think about it in the digital asset sense, you need to be able to accept and send. And that allows you to maintain deposits and support customers that may want to use stablecoins.”
But not everyone is convinced stablecoin or any other digital asset should be a pressing concern for financial institutions. That includes Matt West, chief strategy officer at The Dart Bank, a $1.5 billion institution based in Mason, Michigan, that serves as a sponsor bank for fintechs. He noted Dart isn’t rushing into stablecoin. “What use cases can I do today that will help me get deposits, keep deposits or increase payments?” he asked during the panel with Sonko. “I’m still looking. I haven’t found it yet.”
Risk and Governance
While there is much debate over legitimate use cases for stablecoin, Lazard and Portilla agreed that financial institutions choosing to move forward with a strategy for digital assets must start by addressing governance and risk concerns.
“When you think of the types of issues that you need to examine when a bank is considering its innovation strategy, they’re really core board governance issues,” Portilla said. “And so the question becomes, if you’re looking at some type of stablecoin offering, what’s appropriate in light of your institution’s risk appetite?”
Lazard agreed that question must be addressed. “It’s [about] having a strategic framework for risk management, specific for stablecoin,” he said. “It’s understanding, just as you would for, let’s say an internal audit of your organization, you have known risk statements, you have known risk typologies, you have known controls that can or should be in place to address those risks as they come to fruition.”
Portilla emphasized that putting the work in now will protect financial institutions from being caught off guard if stablecoin and other digital assets become more mainstream.
He used the example of the rise in popularity of peer-to-peer payments app Venmo, which wasn’t something that customers necessarily thought they needed until it became available. The banking industry had to eventually catch up with its own offering, Zelle. “I think you’re going to see that same type of dynamic,” he added. “There’s a lot of money trying to make this product useful. And then, for those entrepreneurs and innovators that are successful in that exercise, that will drive customer demand and adoption.”
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