State Banking Regulators Urge Tightening of Digital Asset Legislation

The Conference of State Bank Supervisors ("CSBS") urged Senate Banking Committee leadership to add additional restrictions on stablecoin issuers in the "Digital Asset Market Clarity Act" and to preserve state authority.

In a letter to Senate Banking Committee Chair Tim Scott and Ranking Member Elizabeth Warren, CSBS acknowledged recent improvements in the proposed legislation, particularly regarding the limitation of preemption related to state money transmission regulation. However, CSBS argued that further changes are necessary to preserve state sovereignty, prevent regulatory arbitrage, and align digital asset activities with existing risk frameworks for traditional assets.

CSBS highlighted several areas where statutory improvements are desired:

• Stablecoin Interest & Yield Restrictions. CSBS requested tighter prohibitions on indirect interest payments to prevent evasion of the legislation's intent. The organization argued that issuers should not be able to funnel yield through affiliates or third-party partners for administrative tasks, such as holding stablecoins in specific wallets.
• Alignment of Bank Powers. CSBS sought amendments to clarify that uninsured national trust charters do not possess full banking powers. Additionally, the organization urged the Committee to remove provisions authorizing commercial banks to underwrite or deal in digital assets, noting that banks lack similar authorities for equity securities.
• Digital Asset Kiosk Transaction Limits. CSBS asked for clarification that federal preemption would not apply to state-imposed transaction limits that are lower—and therefore more protective—than federal standards, citing existing laws in 21 states designed to protect vulnerable consumers from fraud.
• Illicit Finance Coordination. CSBS recommended including state regulators in the proposed pilot information-sharing program as well as the Independent Financial Technology Working Group to ensure that state-licensed entities are adequately overseen in efforts to combat illicit finance.

Separately, regarding the GENIUS Act, CSBS reiterated its call for the removal of Section 16(d) ("State-Chartered Depository Institutions"), arguing that the provision undermines state sovereignty by allowing uninsured banks to bypass host state oversight of money transmission and custody activities through stablecoin subsidiaries.