American Bank: Interest-Bearing Stablecoin Could Disrupt $6 Trillion in Bank Deposits

Bank of America CEO Brian Moynihan warned that as much as $6 trillion in U.S. bank deposits could migrate to stablecoins if these digital assets are allowed to pay interest. This estimate stems from a U.S. Treasury study and highlights growing concerns among traditional banks about the disruptive potential of interest-bearing stablecoins.

The Senate Banking Committee is currently working on a digital asset market structure bill that would restrict stablecoin yield provisions. A key provision in the latest draft bars digital asset service providers from offering interest solely for holding stablecoin balances. However, the bill allows for rewards tied to activities such as staking, liquidity provision, or governance participation.

Banks have pushed for these restrictions to prevent deposit outflows that could undermine lending capacity. The American Bankers Association has warned that shifting deposits from community banks could harm small businesses and home buyers. Meanwhile, crypto exchanges like Coinbase have signaled they will support the bill if the language remains within acceptable limits.

Why Did This Happen?

The debate over stablecoin yields reflects broader tensions between traditional banking and the growing crypto ecosystem.

Banks argue that stablecoins backed by U.S. Treasurys or other short-term instruments sit outside the traditional lending system, reducing the deposit base needed to fund loans.

In response, the Senate has sought to strike a balance between innovation and financial stability. The latest legislative draft emerged after intense negotiations and lobbying from both sides. The American Bankers Association and similar groups successfully advocated for restrictions, while crypto companies expressed concerns about stifling innovation.

How Did Markets React?

The prospect of restricted stablecoin yields has drawn mixed reactions from market participants. Coinbase, one of the largest crypto exchanges, has signaled it may support the final version of the bill if key provisions remain unchanged. However, the company has not ruled out withdrawing support if further restrictions are added.

Other crypto firms are also closely watching the final text of the bill. Franklin Templeton, for instance, has adapted its money market funds to support stablecoin reserves without launching new crypto-native products. This move shows how traditional financial institutions are trying to adapt to the evolving digital landscape.

What Are Analysts Watching Next?

Analysts are closely monitoring how the Senate will handle remaining amendments. Over 70 amendments were filed ahead of a planned committee markup, indicating deep divisions on issues such as ethics provisions and financial surveillance powers.

The final text of the bill will have significant implications for both the crypto and banking sectors. If passed, it could shape the future of stablecoin issuance, reserve management, and the broader integration of digital assets into traditional financial infrastructure.

Conclusion

The Senate's efforts to regulate stablecoin yields reflect a broader struggle to balance innovation and stability. While banks seek to protect their deposit base and lending capacity, crypto firms argue that yield restrictions could hinder market growth. The final outcome of the bill will likely have lasting effects on both sectors.