Crypto: Interest-bearing stablecoins could cause a massive flight of bank deposits

What if the next threat to traditional banks comes not from an economic crisis, but from simple innovation in stablecoins? Brian Moynihan, CEO of Bank of America, warns that the rise of yield stablecoins could lead to a massive flight of bank deposits, disrupting the balance of the US financial system. This worrying scenario for traditional establishments could see their role as lenders seriously affected by this new form of digital competition.

A leak of deposits: the alert from the CEO of Bank of America

During a recent earnings call, Bank of America CEO Brian Moynihan issued a blunt warning that allowing stablecoin issuers to offer interest could trigger a massive withdrawal of deposits from the U.S. banking system.

“These products would be more like money market funds”did he declaredreferring to instruments backed by cash or Treasury bills, but not used for financing loans.

Moynihan, based on studies cited by the US Treasury, estimated that up to $6 trillion in deposits could migrate to these interest-bearing stablecoins, directly jeopardizing the stability of bank funding.

This scenario would have several direct and profound consequences on the American economy, including:

• A significant decline in the lending capacity of banks, particularly those that rely heavily on deposits to finance their activities;

• An increase in borrowing costs for households and businesses, linked to the scarcity of liquidity available in the banking system;

• A disproportionate impact on SMEs, which have limited access to capital markets and rely primarily on traditional bank loans;

• An increased systemic risk, if deposit flows accelerate without a regulatory framework to govern these new financial products.

All of these effects reflect a concern shared by traditional banking institutions, who fear seeing the emergence, via stablecoins, of direct competition to their deposit activities, an area that was until now largely protected.

Regulatory tensions and sectoral rivalries around stablecoins

Beyond economic considerations, it is the political blockages around the CLARITY Act that have reignited tensions.

This bill, designed to provide a regulatory framework for cryptos, has saw its vote rejected once again by the Senate Banking Committeeofficially to allow new bipartisan exchanges. However, the fault lines are deep, particularly around the possibility for stablecoin issuers or platforms to offer returns.

The division is also evident within the crypto industry itself. Coinbase CEO Brian Armstrong said the platform could withdraw support for the text, believing the current version would favor banks by allowing them to “killing rewards on stablecoins”.

In a post on X, Armstrong says the bill, as written, would give banks the power to block any form of competition, adding that “better to have no law at all than a bad law”. In contrast, Chris Dixon, managing partner at a16z Crypto, calls for support for the CLARITY Act despite its imperfections, emphasizing that regulatory progress is essential for the United States to remain a land of crypto innovation.

While Bank of America warns of the risks associated with yield stablecoins, JPMorgan calls for regulating them to protect the integrity of the banking system. This debate on the regulation of cryptos could redefine the future of finance, where the line between innovation and security becomes increasingly blurred.