Stablecoins Could Siphon Trillions from Banks as Regulators Debate Safeguards

RBC Capital Markets analyst Gerard Cassidy posed a pointed question during a recent Bank of America investor conference: would U.S. lawmakers close the “looming loophole” that could allow stablecoin deposits to function like interest-bearing accounts? This question captures the heart of an emerging conflict between cryptocurrency innovation and traditional banking stability. Bank of America CEO Brian Moynihan used the forum to voice what many in the banking sector are thinking—that while his institution will adapt, the broader banking system faces real threats from the potential migration of $6 trillion in deposits into stablecoins and yield-bearing alternatives.

Cassidy Raises Critical Questions on Deposit Dynamics

The analyst’s inquiry touches on a legislative gap that has sparked significant debate among financial institutions. Stablecoin issuers have begun finding creative ways to offer yield-like incentives despite statutory bans on direct interest payments. This workaround threatens the fundamental deposit funding model that traditional banks depend on. The American Bankers Association, representing over 100 community financial institutions, recently urged senators to close what they termed “dangerous loopholes” in stablecoin legislation. In correspondence to Congress, they emphasized that if savings migrate away from banks, the impact cascades through the lending system—smaller and midsize businesses would likely feel the pressure first through reduced credit availability and higher borrowing costs.

Banks Divided Over Systemic Risk Assessment

Notably, not all major financial institutions view stablecoins with equal alarm. When asked about systemic risks, a JPMorgan spokesperson downplayed the concern, arguing that multiple layers of money have always circulated simultaneously and that deposit tokens, stablecoins, and traditional payment forms would simply coexist with different use cases. This contrast highlights a fault line in banking strategy: while community banks worry about deposit flight, some megabanks appear more sanguine about competitive adaptation. Moynihan struck a middle ground, asserting that Bank of America would be “fine” and would meet customer demand whatever emerges, yet he emphasized the larger concern to Congress—that capital shifting off bank balance sheets undermines their core funding mechanism.

The Lending Impact: Why Capital Flight Threatens Credit Markets

The mechanics of this threat are straightforward but consequential. Deposits aren’t merely accounting entries; they fund loans to households and small businesses. If trillions migrate to blockchain-based alternatives, banks must rely more heavily on wholesale funding, which carries higher costs. Those elevated financing expenses directly translate to increased borrowing costs for consumers and businesses. With Bank of America reporting $2 trillion in deposits at year-end 2025, even a fractional shift represents enormous sums. Meanwhile, legislative efforts to regulate stablecoins—including the recently enacted GENIUS Act—are being scrutinized for whether they contain adequate safeguards. The Senate has debated adjustments through a broader crypto market structure bill, though momentum stalled after Coinbase withdrew its support, leaving the regulatory framework uncertain. The question Cassidy posed to banks remains unanswered: how will policymakers balance innovation with the stability of the traditional credit system?