Stablecoin Yield Will Attract $6 Trillion in Bank Deposits: Bank of America

Bank of America has highlighted the threat that stablecoins would pose for US banks and their operation if they incorporated yield-bearing features.

Its CEO, Brian Moynihan, told reporters during the company’s quarterly earnings call on Wednesday that banks would see a massive liquidity outflow into stablecoins. Specifically, $6 trillion in deposits could move from banks into fiat-pegged digital assets, accounting for up to 35% of their total deposits.

Key Points

• Bank of America has highlighted the threat that yield-bearing stablecoins would pose for US banks and their operation if they stood.
• Its CEO, Brian Moynihan, told reporters on Wednesday that $6 trillion in deposits would move from banks into stablecoins.
• Banks have long viewed reward-yielding stablecoins as a threat to core banking in the US, as they impact their lending capacity.
• On January 9, Senate Banking Committee Chair Tim Scott presented the provision that prohibits virtual asset providers from offering interest on passively held stablecoins.
• The bill closes the loophole in the GENIUS Act that banned paying interest on stablecoin holdings while allowing third-party platforms like Coinbase to reward holders.
• Coinbase CEO Brian Armstrong has also kicked back at the bill, noting that the exchange would not support it.

Context for Statement

Banks have long viewed reward-yielding stablecoins as a threat to core banking in the US. Notably, stablecoins offer returns higher than the standard rates banks offer, and banking institutions fear they would erode their relationships with customers.

On Wednesday, Moynihan reiterated this sentiment, stating that banks would experience a shortage in deposits, which would impact their lending capacity. He noted that $6 trillion could shift from banks to stablecoins, citing Treasury Department studies.

According to him, this rebalancing would mean banks can’t get low-cost funding, forcing them to either halt lending or rely on wholesale funding. The latter comes with a cost that impacts their profitability.

Banks Lobbying to Scrap Stablecoin Yields

Meanwhile, banks are already seeking to address this issue in the recently proposed bill on the crypto market structure (CLARITY Act). On January 9, Senate Banking Committee Chair Tim Scott presented the provision that prohibits virtual asset providers from offering interest on passively held stablecoins.

However, the legislation made an exception for rewards on stablecoin activities such as staking and liquidity provision. The bill aims to close the loophole in the GENIUS Act that banned paying interest on stablecoin holdings while allowing third-party platforms like Coinbase to reward holders.

Despite the committee markup being pushed further, banks are already lobbying to close this loophole. Over 70 amendments have already been filed ahead of the postponed meeting, highlighting ongoing efforts to influence its outcome.

Why the Bill Matters for Crypto

According to Galaxy Research, the bill could “enact the single largest expansion to financial surveillance authorities” since the PATRIOT Act of 2001. The CLARITY Act gives the Treasury Department power over crypto transactions, including the ability to freeze assets for 30 days without a warrant.

Meanwhile, Coinbase CEO Brian Armstrong has also kicked back at the bill, noting that the exchange would not support it. According to him, there are several issues with the legislation that would affect the sector’s growth.