Stablecoin Regulation Tests Banks With $6T Deposit Risk

As Washington races to finalize new rules on stablecoin regulation, Wall Street and the crypto industry are clashing over who should control digital dollars and the yield they generate.

Bank of America flags trillions at risk of leaving deposits

Bank of America CEO Brian Moynihan has warned that stablecoins could siphon off as much as $6 trillion from the US banking system, intensifying long-running tensions between large lenders and the fast-growing digital asset sector.

Speaking on the bank’s earnings call on Wednesday, Moynihan said that, under certain regulatory outcomes, roughly 30% to 35% of all US commercial bank deposits could migrate into stablecoins. Moreover, he stressed that the estimate draws on Treasury Department analyses of potential scenarios.

Moynihan linked the threat directly to the ongoing legislative debate in Congress over whether stablecoins should be allowed to pay interest, or other forms of yield, to everyday users. However, he also framed it as part of a broader conversation about how digital assets intersect with traditional banking.

Yield-bearing designs put bank funding models under pressure

At the heart of banks’ concerns is the question of interest on stablecoins. Lawmakers are weighing whether issuers should be permitted to offer yield on balances, a feature that lenders argue could supercharge bank deposit outflows by offering a bank-like product without comparable oversight.

According to Moynihan, many of today’s stablecoin structures resemble money market mutual funds more than insured bank deposits. Reserves, he noted, are usually invested in short-dated instruments such as U.S. Treasurys, rather than being recycled into loans for households and businesses.

That model, he said, could materially shrink the deposit base that banks use to fund credit across the economy. Moreover, a large shift into fully reserved digital dollars would reduce the role of fractional leverage, limiting banks’ ability to transform short-term deposits into long-term lending.

“If you take out deposits, they’re either not going to be able to loan or they’re going to have to get wholesale funding,” Moynihan warned. He added that wholesale funding is typically more expensive, which could compress margins and reduce banks’ willingness to extend credit.

Legislative push on stablecoins reaches critical phase

These industry warnings arrive as the Senate Banking Committee accelerates work on a negotiated crypto market structure bill. The latest draft, released on Jan. 9 by committee chair Tim Scott, would bar digital asset service providers from paying interest or yield simply for holding stablecoins in an account.

However, the proposal draws an explicit distinction between passive holdings and active participation. It would still permit activity-based rewards linked to functions such as staking, liquidity provision, or posting collateral, signaling lawmakers’ intent to separate payments-style stablecoins from riskier, investment-like products.

Pressure around the text has intensified as the committee confronts tight legislative deadlines. More than 70 amendments were filed ahead of a planned markup this week, underscoring the intensity of lobbying from major banking associations and leading crypto firms.

Other contentious sections include proposed ethics rules, which gained unusual attention after reports that the president had earned hundreds of millions of dollars from family-linked crypto ventures. Moreover, those disclosures have sharpened scrutiny of potential conflicts of interest around digital asset policymaking.

Stablecoin regulation debate exposes deeper policy divides

The fight over stablecoin yields is increasingly being framed as a test case for broader stablecoin regulation in the United States. While banks warn of destabilizing outflows, many crypto advocates counter that fully reserved, transparent stablecoins could reduce systemic risk by eliminating opaque leverage.

In public commentary, critics have distilled the issue into stark terms: interest on stable balances could trigger a mass deposit flight; fully reserved digital money would curtail fractional leverage; and banks could lose a key source of low-cost funding, squeezing profits. That said, policymakers are also weighing potential benefits for consumers seeking safer, programmable forms of cash.

However, the draft bill’s design shows that Congress is not prepared to treat all forms of yield equally. Lawmakers appear determined to close off simple, savings account-style returns on stablecoin holdings while still accommodating more complex decentralized finance use cases.

Concerns over expanded Treasury oversight

The proposed framework has also drawn criticism from outside the banking sector. A recent report from Galaxy Research warned that the legislation could significantly widen Treasury Department surveillance over digital asset flows, raising fresh worries among civil liberties and privacy advocates.

Moreover, the Galaxy analysis argued that expanded monitoring powers might chill innovation in crypto payments and financial infrastructure, even as regulators seek greater visibility into on-chain activity. These warnings add another layer of complexity to an already polarized debate.

Industry support fractures as exchanges push back

Unity within the crypto industry is also breaking down. The chief executive of Coinbase said the exchange could not support the bill in its current form, pointing to provisions that he argued would effectively eliminate stablecoin rewards for users.

His comments highlight how contested the emerging rules have become, even among companies that have previously advocated for clearer oversight. However, they also suggest that large platforms see meaningful revenue and engagement risks if straightforward yield programs on stable balances are curtailed.

Later that day, the Senate Banking Committee announced that the scheduled markup of the bill had been postponed. In a brief statement, members said negotiations remained ongoing and that “everyone remains at the table working in good faith,” signaling that the final contours of any compromise are still in flux.

Outlook for banks, stablecoin issuers and lawmakers

For now, the clash between traditional lenders and digital asset firms over how to treat stablecoins and their yields remains unresolved. Banks warn that trillions of dollars in deposits, and by extension their capacity to lend, are potentially at stake.

At the same time, stablecoin issuers and exchanges are lobbying to preserve reward structures that attract users and differentiate their products from conventional bank accounts. Moreover, privacy advocates are pressing lawmakers to narrow any expansion of government monitoring powers over on-chain activity.

As the legislative process moves forward, the outcome of this fight will shape the future of US dollar-denominated tokens, bank funding models, and the balance between innovation, consumer protection, and state oversight in the digital asset economy.