Citi Warns Stablecoin Yields Could Trigger $6.6 Trillion Bank Deposit Flight

Citi has issued a stark warning that stablecoin yields could trigger a $6.6 trillion outflow from traditional banks, drawing comparisons to the 1980s money market fund boom that saw U.S. banks lose $32 billion in net deposits [1]. The concern stems from the growing trend of crypto platforms offering attractive interest rates on stablecoin holdings, which could lure consumers away from traditional financial institutions and disrupt the flow of savings and liquidity [2].

Ronit Ghose, Citi’s head of the Future of Finance, highlighted the risk that stablecoins could replicate the pattern of the 1980s, when money market funds surged from $4 billion to $235 billion, causing a significant shift in deposit patterns [3]. With stablecoin platforms increasingly offering yields of 5–8% APY, banks may be forced to raise deposit rates or rely on more expensive wholesale funding, which could push up borrowing costs for businesses and households [4].

Industry experts have echoed these concerns. Sean Viergutz of PwC noted that the shift could increase funding costs for banks, potentially leading to tighter credit conditions and higher loan rates [5]. The Bank Policy Institute and other banking associations have similarly warned that stablecoin adoption could reduce lending capacity and exacerbate competitive imbalances in the financial system [6].

The regulatory debate centers on the GENIUS Act, which prohibits stablecoin issuers from paying direct interest but allows affiliated entities, such as exchanges, to offer indirect yields through rewards programs. Critics argue this creates an uneven playing field, as banks are restricted from offering similar returns [7]. U.S. banks are now calling for regulators to close this loophole to protect the stability of the banking sector [8].

Crypto proponents, however, argue that stablecoins offer significant benefits, including faster, cheaper cross-border transactions and greater financial inclusion. Paul Grewal, Coinbase’s chief legal officer, has dismissed the banking industry’s concerns as an attempt to shield legacy institutions from competition [9]. Treasury Secretary Scott Bessent has also expressed support for stablecoins, noting their potential to enhance U.S. dollar dominance in global trade and remittances [10].

Despite these counterpoints, the scale of the potential deposit outflow—$6.6 trillion according to Citi—has prompted calls for regulatory clarity. With the stablecoin market expected to expand significantly in the coming years, policymakers face the challenge of balancing innovation with financial stability. As financial institutions and regulators navigate this evolving landscape, the debate over stablecoin yields is likely to remain at the forefront of the financial sector’s policy agenda.

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Source: [1] Crypto Economy. [https://crypto-economy.com/citigroup-warns-stablecoin-yields-may-drain-deposits-from-banks/](https://crypto-economy.com/citigroup-warns-stablecoin-yields-may-drain-deposits-from-banks/)

[2] Yahoo Finance. [https://finance.yahoo.com/news/citi-executive-warns-stablecoin-interest-202759337.html](https://finance.yahoo.com/news/citi-executive-warns-stablecoin-interest-202759337.html)

[4] AInvest. [https://www.ainvest.com/news/6-6-trillion-stablecoin-looming-traditional-banking-2508/](https://www.ainvest.com/news/6-6-trillion-stablecoin-looming-traditional-banking-2508/)

[5] CoinCentral. [https://coincentral.com/u-s-banks-warn-stablecoins-could-trigger-massive-deposit-outflows/](https://coincentral.com/u-s-banks-warn-stablecoins-could-trigger-massive-deposit-outflows/)

[6] Payments Cards & Mobile. [https://www.paymentscardsandmobile.com/us-banks-push-back-on-stablecoins-over-fears-of-deposit-flight/](https://www.paymentscardsandmobile.com/us-banks-push-back-on-stablecoins-over-fears-of-deposit-flight/)

[7] Intellectia AI. [https://intellectia.ai/news/crypto/citi-executive-warns-stablecoin-yields-could-trigger-66-trillion-bank-deposit-flight](https://intellectia.ai/news/crypto/citi-executive-warns-stablecoin-yields-could-trigger-66-trillion-bank-deposit-flight)