U.S. Banks Warn Stablecoins Could Trigger Massive Deposit Outflows

TLDR

• Banks Warn Stablecoin Rules May Trigger $6.6T Deposit Outflow
• Crypto Yields Stir Panic as U.S. Banks Fight Stablecoin Edge
• GENIUS Act Sparks Clash Over Fair Play in Deposit Markets
• Stablecoin Loophole Could Drain Trillions, Say U.S. Banks
• Banking Giants Push Back on Crypto’s Rising Yield Advantage

U.S. banks have issued a warning over proposed stablecoin rules, fearing they may cause trillions in deposit outflows. The GENIUS Act allows stablecoins without permitting direct interest payments by issuers. However, U.S. banks say crypto exchanges can still offer indirect yields, undermining traditional deposit systems.

Circle and Tether Stablecoins Spark Concern Over Regulatory Imbalance

U.S. banks argue the current regulation gives crypto exchanges an unfair yield advantage. Under the GENIUS Act, issuers like Circle or Tether cannot offer interest directly, but affiliated exchanges may provide rewards. This distinction allows exchanges to attract customer funds more easily than banks can.

The banking sector claims this could lead to a massive flight of deposits into stablecoin platforms. They say this “loophole” exposes them to risks in times of economic stress. That risk, they argue, could reduce their ability to lend and support the economy.

U.S. banks have raised the issue with lawmakers through leading lobbies, including the American Bankers Association, the Bank Policy Institute, and the Consumer Bankers Association. All demand revisions to ensure stablecoins do not outcompete traditional bank products.

U.S. Banks Cite Historical Precedents for Deposit Flight Risks

U.S. banks have compared stablecoin yields to the money market fund boom of the 1980s. Back then, money market funds multiplied due to attractive interest rates, pulling funds from checking accounts. According to Federal Reserve data, banks lost more than $30 billion in net deposits during that period.

Citi’s Future of Finance head Ronit Ghose emphasized the parallel in a recent report. He warned that offering interest on stablecoins could replicate this disruptive shift. His analysis added weight to the banks’ calls for stricter enforcement of interest bans.

Consulting firms have echoed those concerns over deposit flight. PwC’s Sean Viergutz stated that banks could face rising funding costs, which could, in turn, increase credit prices for businesses and households.

Crypto Firms Reject U.S. Banks’ Push, Call for Competition

Crypto groups have strongly opposed the lobbying by U.S. banks. They argue that banning exchanges from offering rewards would favor legacy financial institutions. The Blockchain Association and Crypto Council for Innovation claim such changes stifle consumer choice and industry growth.

Coinbase leadership also dismissed the banks’ campaign as anti-competitive, stating that lawmakers and the administration had already rejected those arguments. Crypto advocates insist that the regulation already reflects a balanced approach.

U.S. banks, however, continue pushing regulators to revise the GENIUS Act. They maintain that uneven regulatory rules could cause $6.6 trillion in deposit shifts. The issue underscores rising friction between traditional banks and digital finance platforms.

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