Stablecoins Could Drain Trillions From Bank Deposits: Bank of America Flags $6T Risk That Could Redefine Lending

Bank of America CEO Brian Moynihan warned that up to $6 trillion in U.S. bank deposits could migrate to stablecoins if allowed to pay interest. This estimate represents roughly 30% to 35% of total U.S. commercial bank deposits. The concern centers on interest-bearing stablecoins and how they could reshape the financial system's lending dynamics.

Stablecoins resemble money market mutual funds, with reserves held in short-term instruments such as U.S. Treasurys rather than being used for bank loans. This structure removes deposits from traditional banking channels, reducing lending capacity and increasing borrowing costs. Moynihan emphasized that the potential shift of such large sums could force banks to rely on more expensive wholesale funding.

Legislative efforts are underway to address the risk of interest-bearing stablecoins. A draft bill from Senate Banking Committee Chair Tim Scott proposes banning passive interest on stablecoin balances while allowing activity-based rewards such as staking or liquidity provision. This distinction aims to prevent a direct competition between stablecoins and bank deposits.

Why Did This Happen?

The debate over interest-bearing stablecoins has intensified as both banks and crypto firms lobby for their interests. Banks argue that stablecoins offer similar returns without the regulatory safeguards that banks provide. They fear depositors will shift funds to stablecoins, which offer higher yields than traditional savings accounts.

Treasury Department studies cited by Moynihan highlight the potential outflow of deposits under certain regulatory scenarios. These studies form the basis of the Bank of America CEO's warnings about the broader implications for the banking system and lending capacity.

How Did Markets React?

The legislative uncertainty has already sparked market reactions. Coinbase, a major player in the crypto industry, withdrew support for the proposed bill after it was revealed that some provisions would eliminate stablecoin rewards. This move highlights the deepening divide between crypto firms and traditional banks over regulatory outcomes.

Senate Banking Committee Chair Tim Scott postponed a markup of the bill, stating that negotiations remain ongoing. More than 70 amendments were filed ahead of the postponed meeting, underscoring the high stakes involved.

What Are Analysts Watching Next?

Analysts are closely monitoring how the legislative process unfolds. Galaxy Research has warned that the bill could significantly expand Treasury Department oversight of digital asset transactions, raising concerns about increased surveillance. This potential expansion has drawn comparisons to the post-9/11 Patriot Act.

Investors and market participants are also watching the broader implications for small- and medium-sized businesses. These entities often rely on bank lending for growth and operations. If deposits shift to stablecoins, banks may reduce lending capacity, increasing borrowing costs for these businesses.

Banks continue to lobby lawmakers to restrict interest-bearing stablecoins to protect their deposit base. The outcome of these efforts will shape whether stablecoins become a direct competitor to traditional banks or remain within a more limited regulatory framework.