Bank of America Chief Executive Brian Moynihan has informed lawmakers that mandating stablecoin issuers to pay interest could result in trillions of dollars being withdrawn from banks, a reduction in lending capacity, and an increase in borrowing costs for the U.S. economy.
In its most recent market structure bill, revealed on Tuesday, the Senate Banking Committee addressed potential restrictions on stablecoin yields.
Moynihan, discussing the competitive landscape of stablecoins, stated that Bank of America would adapt regardless of regulatory outcomes, although he contends that the banking system would face a liquidity shortage.
"So I think I would not, look, we’ll be fine. We’ll have the product. We’ll meet customer demand, whatever may surface. And so I don’t worry about it," Moynihan commented, subsequently referencing a U.S. Treasury-commissioned study on the potential severity of deposit migration.
According to these studies, as explained by the Bank of America CEO, as much as $6 trillion in deposits could move from bank balance sheets into stablecoin vehicles if consumers perceive they can achieve higher yields outside the regulated banking system.
Banking Deposits Are Already Low
U.S. banks are currently struggling to bridge the gap between the interest they pay to depositors and the earnings they generate on government securities, a challenge that appears to be largely insurmountable. Data from the Federal Deposit Insurance Corporation indicates that as of mid-December, the national average for savings accounts was approximately 0.39%, checking accounts around 0.07%, and money market accounts a modest 0.58%, while Treasury yields stood at about 3.89%.
This disparity represents a spread of approximately 3.82 percentage points, which is a significant driver of bank profitability. Traditional financial institutions may seek to protect this margin by opposing measures that could enable consumers to earn higher returns on their cash-like holdings.
On page 189 of the Senate's market structure bill, companies are prohibited from paying interest simply for holding stablecoin balances. However, they may offer rewards tied to specific actions such as opening accounts, making transactions, staking assets, providing liquidity, posting collateral, or participating in network governance.
"And the key of that is to think that the restrictions to be a stablecoin is basically think of it as a money market mutual fund concept," Moynihan elaborated, adding that stablecoin reserves would be confined to deposits, central bank accounts, or short-term Treasuries, and would not be deployed for lending. "And so when you think about that, that takes lending capacity out of the system."
The impact, according to the banking executive, would disproportionately affect small and medium-sized businesses, which rely more heavily on bank credit than capital markets.
"So I think in the end of the day, at the margin, the industry gets loaned up. And if you take out deposits, they’re not going to — they’re either not going to be able to loan or they’re going to have to get wholesale funding and that wholesale funding will come at a cost that will increase the cost of borrowing."
Congress is ‘Threatening’ Banks with Proposed Stablecoin Law
Moynihan is among the industry groups urging legislators to consider the risks that stablecoins pose to banking institutions. He acknowledged that lobbyists are uncertain about the potential changes if the bill proceeds through Congress without opposition.
Critics of the banking sector on social media have accused lenders of prioritizing "profit preservation" over consumer interests. Some users on X have criticized the industry's concerns and alleged that banks exploit depositors.
"They basically steal all the yield YOUR money earns.. giving you pennies on the dollar. Then they find a laundry list of stupid fees to charge you… Overdraft fees? Yea you got a pay them for being poor. If we draw the line against the bank lobby. Stablecoin yield is where to do it," one commenter stated in response to the Bank of America head's remarks.
As reported by Cryptopolitan, the legislation was initially anticipated to be marked up on Tuesday but has since been postponed to the final week of January. Senate Agriculture Committee Chairman John Boozman confirmed the postponement of a scheduled markup meeting, stating that lawmakers had achieved progress but required additional time.
"I am committed to advancing bipartisan crypto market structure legislation. We have made meaningful progress and had constructive discussions as we work toward this goal," Boozman remarked, expressing gratitude to Senator Cory Booker's team for their openness to discussing unresolved policy issues.