Citigroup Warns Stablecoin Yields Could Trigger $6.6 Trillion Deposit Drain

Citigroup’s Ronit Ghose has raised concerns over the potential for stablecoin interest payments to trigger a mass exodus of bank deposits, echoing the financial turmoil of the 1980s when money market funds rapidly drew away deposits from traditional banks. Ghose highlighted how the growth of money market funds from $4 billion to $235 billion in seven years led to significant deposit outflows during a period of tightly regulated deposit rates [1].

This warning comes as major U.S. banking groups, including the American Bankers Association and the Bank Policy Institute, push to close what they describe as a regulatory loophole in the GENIUS Act. The legislation currently prevents stablecoin issuers from directly paying interest, but it allows crypto exchanges and affiliated entities to offer returns to stablecoin holders through marketing incentives and affiliate programs [2]. According to the Treasury Department, yield-bearing stablecoins could potentially result in up to $6.6 trillion in deposit outflows, fundamentally altering how banks fund loans and manage liquidity [3].

Sean Viergutz, a banking and capital markets advisory leader at PwC, supports the concerns, noting that banks may face higher funding costs by relying on wholesale markets or raising deposit rates, which could increase borrowing costs for households and businesses [4]. During the 1980s, deposit outflows exceeded new inflows by $32 billion between 1981 and 1982 as consumers shifted their money into higher-yielding money market funds [5]. Bank deposits are a primary source of funding for loans, and large-scale outflows could tighten credit availability, leading to broader economic consequences.

Notably, Citigroup’s stance is somewhat contradictory. While Ghose warns of the risks, Citi is actively exploring stablecoin custody services and is considering issuing its own digital dollar token. CEO Jane Fraser confirmed in a July earnings call that the bank is developing tokenized deposit services for corporate clients seeking faster settlement capabilities [6]. Citi already uses blockchain to enable dollar transfers between offices in New York, London, and China Hong Kong, positioning itself to benefit from the growing adoption of stablecoins.

In response, crypto industry advocates have criticized the banking lobby’s efforts, arguing that restricting stablecoin yields would unfairly favor traditional institutions and limit consumer choice. The Crypto Council for Innovation emphasized that such restrictions would distort the market, and Coinbase’s Chief Legal Officer, Paul Grewal, dismissed the banking groups’ concerns, pointing out that lawmakers had already rejected similar anti-competitive proposals during the GENIUS Act’s passage [7].

The debate is unfolding as stablecoins are projected to handle $1 trillion in annual payment volume by 2028 and could account for 10% of the U.S. money supply. Research from Keyrock and Bitso suggests that stablecoins offer settlement speeds up to 13 times faster and at significantly lower costs compared to traditional banks [8]. Treasury Secretary Scott Bessent has also voiced support for stablecoins, stating they could expand global access to the U.S. dollar and boost demand for U.S. Treasuries.

The GENIUS Act includes a “Libra clause” aimed at preventing large corporations from dominating the stablecoin space by requiring separate entities for issuance and banning direct yield payments. However, platforms such as Coinbase and PayPal argue that the prohibition applies only to issuers, not to exchanges or intermediaries that offer rewards to users.

As the financial system faces increasing disruption from programmable money, stablecoins are reshaping traditional payment infrastructure with their borderless, efficient, and cost-effective capabilities. The coming years will likely see a pivotal shift in the balance of power between legacy banking systems and emerging digital asset platforms.

[1] https://cryptonews.com/news/citi-executive-warns-stablecoin-interest-payments-could-drain-bank-deposits-like-the-1980s-crisis/