BY HOWARD HEADLEE, President and CEO, Utah Bankers Association The Bottom Line The CLARITY Act stalled in the Senate during our annual visit to D.C. in September. The day after the cloture vote failed, Coinbase CEO Brian Armstrong lashed out at the banking industry in frustration. It was strange because we, too, were pushing for passage of CLARITY, with one simple amendment. But one of his comments should raise enormous red flags and illustrates why we have struggled to find agreement. He criticized banks for making loans without their depositors’ approval! To any banker, the suggestion was preposterous! It reflects a serious lack of understanding of our banking system. Bank depositors always maintain access to their funds, with eligible deposits guaranteed by the FDIC, even as banks put those deposits to work through lending. I don’t think he realized it, but his comment revealed the weakness in his argument on CLARITY and the static lens through which he and the crypto lobby see our financial system. If we were to adopt his viewpoint, it would be devastating to the U.S. economy and the dynamism of our banking system. For years, crypto and fintech leaders have viewed banking through a static, tech-focused lens. They develop nifty applications to track and manage people’s money, underwrite loans or facilitate payments, because that’s what they see when they look at a bank. But a bank is much more than the sum of its individual deposit or lending products. One of a bank’s most important roles in the economy is the creation of money through lending. Banking is dynamic in that people who deposit money in a bank maintain the use of those funds even after the bank uses those funds to make a loan. Therefore, with each loan, money is effectively created in the economy. When banks make sound loans that finance productive economic activity, they help expand economic capacity, create opportunities and generate wealth without necessarily fueling inflation. This is called fractional reserve banking. And the U.S. has more banks creating more money and wealth than any other nation, and that’s why our economy is the envy of the world. It’s also why banks are regulated differently from other financial and tech firms. Mr. Armstrong promotes a more static version of our financial system because his products are not dynamic like bank deposits. Each stablecoin is forever tied to a specific group of liquid assets. Those assets give the stablecoin its value, and nothing can be done with those assets as long as the “coin” exists. For Mr. Armstrong to realize his vision of challenging banks, he has to eliminate banking’s dynamic advantage by proposing an end to fractional reserve banking. That result would be good for him, but devastating to the U.S. economy. Members of Congress should pay careful attention to his words because what he proposes would wreak havoc in their congressional districts. It would move us toward a zero-sum economy, where growth is constrained rather than fueled by the creation of new credit and opportunity. In contrast, the dynamic impact of bank deposits allows all boats to rise and fuels upward mobility. Congress got it right in the GENIUS Act, and thanks to clarifying comments like the ones shared by Mr. Armstrong, we are confident they will get it right in CLARITY. Stablecoins are not bank deposits but rather represent a new and important way to make a payment. CLARITY builds on GENIUS by prohibiting anyone involved with issuing or holding stablecoins from offering interest or rewards that would effectively allow them to function as a “store of value” to compete with bank deposits. Congress needs to resist efforts by the crypto lobby to insert loopholes into those safeguards and thereby preserve the dynamic role deposits play in creating credit, wealth and economic growth for America. Utah Banker 4
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