Wall Street financial institutions are expressing significant concerns regarding the rapid growth of stablecoins, particularly those offering yield. Bank of America's CEO has warned that interest-bearing stablecoins could potentially siphon off $6 trillion from U.S. banks. This issue, the central dispute in stalled crypto legislation, stems from banks' fears that stablecoin yield rewards would attract customers away from conventional banking products, leading to widespread deposit flight.
Senators Thom Tillis (R-N.C.) and Angela Alsobrooks (D-Md.), with White House backing, have reached a tentative agreement to address these concerns. Their deal proposes to bar yield payments on "passive balances" of stablecoins, aiming to protect innovation while preventing massive deposit outflows. This agreement is seen as a major step toward advancing the CLARITY Act, a landmark crypto bill that has been stalled since January due to this very clash.
The American Bankers Association (ABA) has strongly rebutted a White House report that downplayed the threat of stablecoin yield to bank deposits. The ABA argues that the report analyzed the wrong scenario and that prohibiting yield on payment stablecoins is a necessary safeguard. They contend that in a larger market, yield would accelerate the migration out of bank deposits, potentially scaling from $300 million to as much as $2 trillion if unchecked. They also suggest that stablecoin issuers would likely place reserves in larger institutions, bypassing community banks.
The Bank for International Settlements (BIS) has also sounded an alarm, warning that U.S. dollar-backed stablecoins could destabilize financial systems and are prone to run-like events. BIS General Manager Pablo Hernández de Cos noted that leading tokens behave more like investment products than cash, with reserves relying on short-term government securities and bank deposits. Rapid withdrawals could force quick asset sales or pressure banks, and stablecoins on public blockchains raise anti-money laundering concerns. Concerns about global regulatory gaps and slow progress on international standards for stablecoins persist.
Despite the banking sector's opposition, Standard Chartered predicts that the stablecoin market cap could reach $2 trillion by the end of 2028. This growth is projected to create up to $1 trillion in new demand for short-term Treasury bills, used by stablecoin issuers to back their reserves. This demand, combined with projected Federal Reserve buying, could lead to a potential shortfall of $0.9 trillion in T-bills if the Treasury maintains its current debt mix, potentially prompting a suspension of 30-year bond auctions.
