An Uncertain Future For U.S. Banks Amid The Rise Of Paid Stablecoins

What if the next threat to traditional banks did not come from an economic crisis, but from a simple innovation in stablecoins ? Brian Moynihan, CEO of Bank of America, warns that the rise of yield-bearing stablecoins could trigger a massive outflow of bank deposits, thus disrupting the balance of the American financial system. This worrying scenario for traditional institutions could see their role as lenders severely affected by this new form of digital competition.

A deposit outflow : warning from Bank of America’s CEO

During a recent earnings call, Brian Moynihan, CEO of Bank of America, issued a straightforward warning: allowing issuers of stablecoins to offer interest could cause a massive withdrawal of deposits from the American banking system.

“These products would more closely resemble money market funds”, he stated, referring to instruments backed by cash or Treasury bills, but not used for loan financing.

Moynihan, based on studies cited by the U.S. Treasury, estimated that up to $6 trillion of deposits could migrate to these rewarded stablecoins, directly endangering the stability of bank financing.

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

• A significant decrease in banks’ lending capacity, especially those heavily reliant 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 primarily rely on traditional bank lending ;

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

All these effects reflect a concern shared by traditional banking institutions, which fear the emergence, via stablecoins, of direct competition to their deposit activities, a field until now largely protected.

Regulatory tensions and sector rivalries around stablecoins

Beyond economic considerations, political deadlocks around the CLARITY Act have revived tensions.

This bill, designed to provide a regulatory framework for cryptos, had its vote postponed again by the Senate Banking Committee, officially to allow for new bipartisan exchanges. However, the lines of fracture are deep, especially regarding the possibility for stablecoin issuers or platforms to offer yields.

The division is also evident within the crypto industry itself. Coinbase’s CEO, Brian Armstrong, stated that the platform might withdraw its support for the bill, considering that the current version would favor banks by allowing them to “kill rewards on stablecoins”.

In a post on X, Armstrong claimed that the bill, as currently drafted, would give banks the power to block any form of competition, adding that “it’s better to have no law at all than a bad law”. In contrast, Chris Dixon, managing partner at a16z Crypto, calls to support 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 about the risks associated with yield-bearing stablecoins, JPMorgan calls to regulate them to protect the integrity of the banking system. This debate on crypto regulation could redefine the future of finance, where the line between innovation and security becomes increasingly blurred.