Bank of America CEO Brian Moynihan has issued a stark warning regarding the potential impact of interest-bearing stablecoins on the US banking system. He stated that these digital assets could withdraw as much as $6 trillion from the nation's banks. Moynihan argued that such a large-scale migration of deposits would inevitably reduce the capacity for lending and, consequently, drive up borrowing costs for consumers and businesses.
These remarks gained attention after a cryptocurrency investor shared a screenshot from Bank of America's earnings call transcript on X. During the call, Moynihan referenced studies cited by the Treasury Department, which suggest that a substantial portion of bank deposits could be transferred into stablecoins if issuers are permitted to offer interest on them.
He elaborated that these stablecoin products would function more like a "money market mutual fund concept." In such a scenario, funds would primarily be held in cash, central bank reserves, or short-term Treasurys, rather than being deployed for lending activities. Moynihan emphasized that this shift would effectively move deposits off bank balance sheets, leading to a contraction in credit availability. This impact would be particularly felt by small and mid-sized businesses, which depend more heavily on traditional bank loans than on capital markets for their financing needs.
Stalled Progress in Crypto Legislation
Moynihan's comments arrive at a time when progress on cryptocurrency legislation in the United States has encountered significant hurdles. On Wednesday, the US Senate Banking Committee postponed a scheduled markup of the crypto market structure bill. Committee Chair Tim Scott indicated that the delay was necessary to allow for further bipartisan negotiations, but he did not provide a new date for the markup.
This postponement followed a similar move by the Senate Agriculture Committee, which earlier in the week pushed its own markup of the crypto bill to January 27.
The Debate Over Stablecoin Yield
A central point of contention in ongoing negotiations across Congress has been the question of whether stablecoin issuers, or the exchanges and third parties that distribute their tokens, should be allowed to offer yield. Banking groups have voiced strong opposition to this, arguing that yield-bearing stablecoin products function similarly to unregulated investment products. They have been vocal in their efforts to close any loopholes that permit yield to be passed on to tokenholders.
On January 7, the Community Bankers Council penned a letter to lawmakers, echoing the concerns raised by Moynihan. The council warned that up to $6.6 trillion in bank deposits could be at risk if restrictions are not implemented. The letter stated:
If billions are displaced from community bank lending, small businesses, farmers, students, and home buyers in towns like ours will suffer. Crypto exchanges and the constellation of stablecoin-affiliated companies are not designed to fill the lending gap, nor will they be able to offer FDIC-insured products.
Leaders within the cryptocurrency industry are divided on the current state of the CLARITY Act, a bill designed to clarify the regulatory framework for digital assets. This bill has already passed in the House of Representatives and is awaiting consideration in the Senate.
On Wednesday, Coinbase CEO Brian Armstrong stated that his company could not support the Senate Banking Committee's draft of the bill. He cited, among other reasons, that it would "draft amendments that would kill rewards on stablecoins, allowing banks to ban their competition." Armstrong added that Coinbase would "rather have no bill than a bad bill" if the legislation progresses in its current form.
Conversely, other industry leaders have adopted a more optimistic perspective. On Thursday, Chris Dixon, a managing partner at a16z Crypto, commented that while the bill is "not perfect" and still requires adjustments, advancing the CLARITY Act is crucial if the United States aims to maintain its position as a leading hub for crypto innovation.