Banks Warn $6T Could Leave Deposits as Stablecoin Rules Tighten
- Bank leaders warn stablecoins could pull trillions from deposits and limit loan funding.
- Lawmakers seek to block yield on idle stablecoins while allowing activity-based rewards.
- Banks say deposit losses may raise funding costs and affect small business credit.
Bank of America CEO Brian Moynihan told analysts that up to $6 trillion in U.S. deposits could move into stablecoins. He delivered the warning during a Wednesday earnings call. That amount equals about 30% to 35% of total U.S. commercial bank deposits, based on Treasury Department studies Moynihan cited. The projection centers on how lawmakers treat interest-bearing stablecoins.
Moynihan said the issue matters because deposits fund lending. When deposits leave banks, loan capacity declines. Banks then seek other funding that costs more. The discussion comes as Congress reviews a new crypto market structure proposal. Lawmakers continue to debate whether stablecoin issuers should offer yield on idle balances.
Stablecoins Compared With Money Market Funds
Moynihan said stablecoins resemble money market mutual funds in structure. Reserves typically sit in short-term instruments like U.S. Treasuries. They do not recycle into bank lending. As a result, funds remain outside the traditional banking system. That shift reduces the deposit base banks rely on to support household and business loans.
Moynihan said deposit losses force banks to adjust. They either reduce lending or turn to wholesale funding markets to replace lost deposits. Wholesale funding comes at a higher cost than retail deposits. Those higher costs can pass through to borrowers over time.
Moynihan explained that deposits serve as funding, not just transaction plumbing. When deposits move away, the entire lending model changes.
Lawmakers Target Interest and Yield Features
Legislative talks now focus on a draft crypto market structure bill. Senate Banking Committee Chair Tim Scott released the latest negotiated text on Jan. 9. The proposal bans digital asset service providers from paying interest or yield for simply holding stablecoins. The restriction targets idle balances sitting in user accounts.
At the same time, the bill allows activity-based rewards. Permitted incentives include staking, providing liquidity, or posting collateral. Lawmakers framed the distinction as a way to limit deposit-like competition. The goal centers on preventing stablecoins from acting like interest-bearing bank accounts.
The draft bill reflects concerns raised by banks and regulators during earlier hearings and consultations.
Banking Groups Echo Deposit Drain Concerns
Moynihan’s comments align with warnings from the American Bankers Association. More than 100 community financial institutions sent a letter to U.S. senators on Jan. 5. The group urged lawmakers to close what it called dangerous loopholes in stablecoin legislation. The banks said issuers increasingly offer yield-like incentives.
According to the letter, those incentives threaten to pull savings away from banks. Community banks rely on deposits to fund loans to households and small businesses. Moynihan told analysts that Bank of America would adapt to customer demand. He said the bank would remain fine regardless of outcomes.
Still, he warned Congress that trillions could migrate off bank balance sheets. He said that shift could raise borrowing costs, with smaller and midsize businesses likely affected first.
Related: Germany Pushes MiCAR as Banks Open Regulated Crypto Access
Trillions at Stake as Policy Lines Are Drawn
The debate now sits at a critical junction as lawmakers weigh financial stability against innovation. Bank leaders warn that large-scale deposit migration could reshape credit markets. At the same time, stablecoin rules aim to limit direct competition with bank deposits. As Congress refines the framework, the outcome will determine whether trillions remain within banks or continue shifting toward blockchain-based payment and reserve systems.
