What comes next for banks in a post-CLARITY Congress

• Key insight: The failure of the Senate to advance the crypto market structure bill hands banks a lobbying win, but maintains the status quo for small and large institutions. 
• What's at stake: Democrats introduced banks' favored yield changes at a markup earlier this year, but would likely be more skeptical about permissibility changes — a favored feature for banks in the bill — if they hold the pen for future legislation. 
• Forward look: It is still possible for the CLARITY Act to be resurrected in the current Congress, but the chances of the bill being called up again are exceedingly slim. 

WASHINGTON — Congress dealt a decisive defeat to the crypto industry on Tuesday when the Senate voted down the industry's favored crypto market structure bill from even getting debate time on the floor. 

All Democrats — including those who were heavily involved in drafting large parts of the bill — voted against it, as did several Republicans. More could have peeled off from the group following lobbying from the banking industry, several people with knowledge of key lawmakers' thinking said. 

That result comes after the crypto industry spent hundreds of millions in the 2024 election cycle to put sympathetic lawmakers in place to pass a sweeping cryptocurrency market structure bill. It's been a longtime priority of the industry — one that has sometimes coincided, and other times clashed, with the interests of the banking industry in Washington. 

Sen. Thom Tillis, R-N.C., voted against cloture on Tuesday with a motion to recommit, a procedural move that lets Republicans move the bill back to the Senate floor for another try. That's not a path they would pursue unless they reach an agreement with key Democrats on ethics provisions in the legislation — as well as durable enforcement mechanisms for them — meaning CLARITY's passage is still technically possible. 

"From a technical perspective, yes, the legislation could be brought up again," said Mark Hays, an associate director at Americans for Financial Reform. "You saw Senator Tillis switch his vote at the last minute to allow for that procedurally, so there is a chance that some elements of CLARITY, as considered by the Senate — or even as passed by the House — could find their way into the lame duck session." 

But in all likelihood, it won't be until the new Congress is sworn in that substantive work will be taken back up. 

"Procedurally, that's going to be really difficult, just because a lame duck is a challenging period, no matter what the outcome of the election is," he said. "So it's dicey in terms of trying to sort that out, but that unpredictability certainly makes for interesting surprises from a policy perspective." 

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House Majority Whip Tom Emmer said Monday before the vote that if the bill failed on Tuesday, he would push to pass the bill in the lame duck session because the measure "absolutely has to get done by the end of the year."

Shifting political winds

If polls are to be believed, Democrats have an inside track to winning back both the House and Senate in the 2026 midterm elections. Although the crypto industry's spending has benefitted some Democrats, the perceived conflicts of interest between President Donald Trump and the crypto industry — which comprises a considerable portion of his personal wealth — will likely prevent most Democrats from cozying up too closely with crypto in the future. 

Should Democrats prevail, it would create both threats and opportunities for the banking industry.  Sens. Jack Reed, D-R.I., and Tina Smith, D-Minn., in a markup for the crypto legislation offered an amendment with banks' preferred language banning yield on stablecoin holdings, but the amendment was denied a vote because of the maneuvers of Senate Banking Committee Chairman Tim Scott, R-S.C. 

If Democrats win the Senate — a difficult but not-impossible prospect — banks would likely be looking at the Senate Banking Committee chairmanship of Sen. Elizabeth Warren, D-Mass., one of the lawmakers most concerned about the crypto industry's advancing tendrils into the banking system. She would almost certainly codify Democrats' ethics concerns into any future attempt at a crypto market structure bill, and would also likely include provision to more fully insulate the banking system from the crypto industry. 

"The [CLARITY Act] would give banks a green light to use Americans' bank deposits to engage in a brand-new list of risky crypto activities: lending against crypto as collateral, buying crypto directly, trading crypto derivatives, operating blockchain nodes, selling crypto software, the list goes on and on," Warren said Tuesday on the Senate floor ahead of the vote. "Think about how the price of crypto shot up and down and up and down in the last couple of years alone, and then imagine what happens when the biggest banks in America use the money in your savings account to load up on that kind of crypto."

Steve Gannon, a partner at Davis Wright Tremaine, said that Democrats might want to advance some kind of crypto legislation to the floor, but a bipartisan law at this point looks increasingly unlikely in the near future. 

"If the polls are right and the Democrats take at least one chamber, they could put crypto legislation on the floor just to try to make debating points," he said. "But it's very unlikely that you're going to pass anything. They would need Republican votes in the Senate to get past cloture, and given the experience we just went through, that's not too likely."

Tokenization continues apace

Going forward, Gannon said that the banking industry will plan to operate under the status quo, understanding that crypto companies will likely want to ramp up yield-like reward programs. 

"If I am a good-size bank — let's say over $150 billion in assets — then I'm really studying how crypto infrastructure is going to impact me," he said. "How is it going to affect my ability, within the corporate treasury, to control costs, to avoid having to pre-position collateral?"  

He said that banks will look at how to change their businesses around different kinds of assets being tokenized. 

"Let's say in the wealth management space, if all of a sudden I've got a change from … clients who are trading stocks to trading tokenized stocks — what does that mean for me?" Gannon said. "How do I have to pivot and deal with that? Because that's not something I can control on my own." 

For smaller banks, the math is a bit trickier. They need to more carefully track deposit movements as stablecoin companies consider yield-like programs, and they will have to search for third-party providers to have the same capabilities that larger banks can develop internally. 

"I'm going to be concerned about having to onboard in some way, either internally or through third parties, the talent and the resources I'm going to need to be able to offer the crypto tools that I need to offer in order to control my expenses better," Gannon said.