Stablecoin Yields: Assessing the $6 Trillion Threat Against a Backdrop of Record Small Business Credit

The central battleground in the stalled Senate debate over crypto regulation is a $6 trillion question. Bank of America CEO Brian Moynihan has framed the issue starkly, warning that up to $6 trillion in deposits-roughly 30% to 35% of all commercial bank deposits-could migrate to stablecoins under certain regulatory outcomes. This isn't a distant hypothetical. It's the core threat to the traditional banking model, a structural shift that could drain the very fuel banks use to power the economy.

The mechanism is straightforward and alarming. Yield-bearing stablecoins, as Moynihan notes, operate like a "money market mutual fund," where deposited cash is invested in low-risk, short-term debt securities like U.S. treasury bills. Unlike a bank deposit, which is recycled into loans for homes, cars, and small businesses, that capital is parked in government debt. This creates a direct funding squeeze. As Moynihan explained, when deposits leave, banks are left with a stark choice: either not be able to loan or have to get wholesale funding. That alternative source of capital would almost certainly come at a higher cost.

The political standoff over the Digital Asset Market Clarity Act crystallizes this tension. The bill's latest draft would ban firms from offering yields on stablecoin deposits, a move banks see as essential to protect their deposit base. Crypto firms, led by Coinbase CEO Brian Armstrong, have pushed back, arguing such restrictions would kill rewards on stablecoins and stifle innovation. This clash over yield is the flashpoint that has already derailed legislative momentum, with the Senate Banking Committee delaying the markup after industry players withdrew support. The debate is no longer just about regulation; it's about who controls the capital that funds American business.

The human cost of this potential drain is a key point of contention. Moynihan has emphasized that small and medium-sized businesses, which are generally more likely to be lent money via banks, would likely feel the impact first. A shrinking bank lending capacity could translate directly into higher borrowing costs for these vital economic engines. In this light, the $6 trillion threat is not merely a balance sheet concern for Wall Street. It is a potential catalyst for a broader economic shift, where the flow of credit to Main Street is rerouted through unregulated digital channels.

The Small Business Credit Channel: Current Strength vs. Future Vulnerability

The immediate financial picture for small businesses is robust. The U.S. Small Business Administration (SBA) announced it will close its fiscal year with a record $44.8 billion in loan guarantees, the most capital ever delivered to this sector. This surge, driven by heightened demand and confidence, underscores a powerful current tailwind for Main Street lending.

Yet this strength is precisely what makes the looming structural threat more acute. The $6 trillion deposit drain that Bank of America CEO Brian Moynihan warns could hit the banking system would directly attack the very channel that fuels this growth. His explicit concern is that small- and medium-sized businesses would be hurt first as fewer deposits mean less lending capacity and higher borrowing costs. This isn't a theoretical risk; it's a direct causal chain. When banks lose deposits to yield-bearing stablecoins, they either cannot lend or must secure wholesale funding at a higher cost. That cost inevitably gets passed on to borrowers.

The threat is now formally recognized beyond the banking sector. In a significant show of unity, America's Credit Unions joined banks in opposing yield incentives on stablecoins. Their letter to Congress frames the issue starkly: every deposit represents a home loan, a small business loan, or an agricultural loan. Allowing yields to drain these deposits would constrict the credit that fuels communities. This coalition highlights that the vulnerability extends to the entire network of traditional lenders that serve small business.

The tension, therefore, is between a powerful present and a fragile future. Current record SBA lending reflects a moment of peak confidence and policy support. But the regulatory debate over stablecoin yields is a battle for the underlying funding model of that lending. If the Senate proceeds with a bill that bans yield, it would be a direct attempt to preserve the traditional bank-lending pipeline. The alternative-a market that allows yield-could accelerate the deposit outflow, gradually tightening credit conditions and raising costs for the very businesses that are currently benefiting from record loan volumes. The strength of today's credit channel makes the potential for tomorrow's vulnerability all the more consequential.

The Regulatory Crossroads: Scenarios for the Banking System

The Senate's decision to delay the markup of the Digital Asset Market Clarity Act has created a critical period of uncertainty. This pause forces banks to navigate a regulatory crossroads with two starkly different paths, each carrying distinct financial implications for their balance sheets and profitability.

The current legislative draft, which would ban firms from offering yields on stablecoin deposits, represents a clear attempt to protect the traditional banking model. Proponents argue this preserves the flow of deposits into the lending pipeline, shielding small businesses from a potential funding squeeze. For banks, this path offers a measure of stability. It would slow the $6 trillion drain that CEO Brian Moynihan warns could hit the system, helping to maintain their low-cost funding base. Yet, this protection comes at a cost. A ban on yield could stifle innovation within the U.S. crypto sector, potentially pushing activity and capital offshore to more permissive jurisdictions. It also risks ceding the yield-bearing product market entirely to foreign or unregulated providers.

The alternative path, which allows yields, would accelerate the structural shift. It would validate the model of stablecoins as a competitive alternative to bank deposits, directly challenging banks' core funding advantage. In this scenario, banks would face a more aggressive battle to retain customer deposits. To compete, they would likely need to pay higher rates on savings and checking accounts, directly compressing their net interest margins. This pressure would be a direct cost to profitability, as the spread between what banks earn on loans and what they pay for deposits narrows.

The bottom line is that both paths involve trade-offs, but the immediate financial pressure is more acute under the permissive scenario. A yield-allowing regime would force banks to pay more for the capital they need to lend, potentially leading to higher loan rates for consumers and businesses. The Senate's delay, however, means banks cannot lock in a funding strategy. They must prepare for either outcome, managing the risk of deposit outflow while also planning for a potential rise in their cost of funds. The resolution of this debate is no longer just a policy issue; it is a fundamental determinant of the banking system's future cost structure and lending capacity.

Catalysts and Risks: What to Watch in 2026

The regulatory crossroads now has a timetable. After months of delay, Senate Banking Committee Chairman Tim Scott has announced the markup of comprehensive digital asset legislation will proceed on January 15, 2026. This is the immediate catalyst that will determine the fate of the yield debate and, by extension, the $6 trillion threat. The key will be the final text, particularly the provisions on stablecoin yields. The most recent draft, which would ban firms from offering yields on stablecoin deposits, represents the banking industry's preferred outcome. Its passage would be a direct intervention to protect the traditional funding model. The alternative, a yield-allowing framework, would validate stablecoins as a competitive deposit substitute, accelerating the structural shift.

In the weeks following this markup, the market will begin to price in the outcome. The first tangible signals will be in bank funding metrics. Watch for any divergence between the yields banks are paying on retail deposits and the yields available on short-term U.S. Treasury bills. If banks are forced to pay more to retain deposits, that spread compression will be visible in their net interest margins. Any sustained gap could signal early outflows to yield-bearing stablecoins, even before the final bill is signed into law.

The bank response will be the next critical variable. The evidence suggests adaptation is inevitable. As Radi El Haj of RS2 noted, banks will "need to adapt their products, pricing, and technology stacks" to compete. The most direct reaction would be a sharp increase in retail deposit rates, a move that would directly pressure profitability. However, banks may also seek alternative funding sources, such as wholesale borrowing or tapping into their capital buffers, to offset potential deposit losses. The path they choose will reveal their confidence in the regulatory outcome and their ability to manage the new competitive landscape.

The bottom line is that 2026 will be a year of decisive action and adaptation. The Senate markup is the event that sets the stage. The subsequent monitoring of deposit flows and bank funding costs will show whether the threat is materializing. And the strategic choices banks make in response-whether to fight with higher rates or pivot to new funding-will define the resilience of the traditional lending pipeline in the face of a digital challenger.