Bank of America CEO Brian Moynihan is cautioning lawmakers about the potential impact of interest-bearing stablecoins on the U.S. banking system. In a recent statement, Moynihan warned that allowing stablecoin issuers to pay interest could lead to a massive shift of up to $6 trillion from traditional banks to stablecoins. This outflow, representing approximately 30% to 35% of total U.S. commercial bank deposits, could significantly reduce banks' lending capacity and increase borrowing costs across the economy.
Moynihan's concerns stem from the way stablecoins are structured. He likened them to money market mutual funds, where reserves are primarily invested in short-term instruments like U.S. Treasuries rather than being used for bank lending. This means that if a large amount of deposits moves into stablecoins, those funds would effectively be taken out of the traditional banking system, shrinking the deposit base that banks rely on to fund loans to businesses and households. "If you pull deposits out, they either won't be able to make loans, or they'll have to raise wholesale funding, and that funding will have its own cost,” Moynihan stated. He also noted the impact would disproportionately affect small and medium-sized businesses that rely on bank credit more than capital markets.
The Bank Policy Institute had previously cited a similar Treasury study, warning of potential capital outflows of $6.6 trillion.
The debate over stablecoins is currently playing out in the U.S. Senate, where lawmakers are considering legislation to regulate the digital assets. A draft of the Clarity Act, introduced by Senator Tim Scott, aims to restrict digital-asset providers from paying interest "simply for the fact of holding" a stablecoin. The bill does allow for rewards for active participation in the ecosystem, such as providing liquidity, participating in protocol governance, or staking. Senator Scott postponed a scheduled committee meeting to discuss the bill, citing the need for further discussion.
The proposed restrictions on stablecoin yields have sparked controversy within the crypto community. Coinbase CEO Brian Armstrong announced that his company could not support the bill as written, arguing that it includes provisions that would stifle stablecoin rewards, impose restrictions on tokenized equities, and limit decentralized finance. Armstrong has accused lawmakers of trying to eliminate competition for banks by hindering stablecoin rewards.
Moynihan acknowledged that Bank of America would adapt to any regulatory outcome but emphasized the potential for a liquidity crunch within the banking system if interest-bearing stablecoins are not properly regulated. Some critics have accused banks of trying to protect their profits at the expense of consumers, who could benefit from the higher yields potentially offered by stablecoins.
