Bank of America warns stablecoin yield could drain bank deposits

Traders Union
All News
Crypto
Bank of America warns stablecoin yield could drain bank deposits

Senate bill targets “passive yield” on stablecoins

The debate is tied to the Senate’s latest market structure draft, which includes explicit limits on rewarding users simply for holding stablecoins. The bill bars companies from paying interest on stablecoin balances as a default feature, while allowing “rewards” only when linked to activity such as transactions, staking, liquidity provision, collateral posting, or governance participation. Moynihan argued this framework is meant to ensure stablecoins function more like cash instruments rather than credit intermediaries, with reserves restricted to deposits, central bank accounts, or short-term Treasuries. But that structure comes with a trade-off: stablecoin reserves generally can’t be used to fund lending the way banks use deposits.

Moynihan warned that if deposits flow out, banks would be forced to rely on wholesale funding markets, which are more expensive and less stable than retail deposits. That shift could raise borrowing costs, particularly for credit-dependent parts of the economy. The CEO emphasized the downside would be most acute for small and mid-sized businesses, which depend far more on bank loans than capital markets.

A fight over margins, consumers, and who captures yield

Moynihan’s message highlights a deeper tension: stablecoins could disrupt the spread banks earn between what they pay depositors and what they earn on safe assets like Treasuries. FDIC averages show U.S. banks were paying roughly 0.39% on savings and 0.07% on checking, while Treasury yields sat near 3.89%, creating a wide profitability gap that traditional lenders are reluctant to surrender. Critics argue banks want to preserve that margin by blocking consumers from earning better returns on cash-like holdings through stablecoins.

On social media, opponents of the banking lobby accused lenders of “stealing the yield” depositors generate while charging fees on top, framing stablecoin yield as a consumer-friendly correction. Meanwhile, legislative progress remains uncertain, with the Senate Agriculture Committee delaying a planned markup to late January as lawmakers negotiate unresolved issues. The fight now looks less like a technical debate over financial plumbing and more like a political showdown over whether tokenized dollars will behave like deposits—or compete directly with them.

Recently we wrote that Visa has selected UK-based stablecoin infrastructure provider BVNK to power new Visa Direct pilots that let some business customers pre-fund cross-border payouts in stablecoins and send digital US dollars directly to recipients’ wallets in select markets.

This material may contain third-party opinions, none of the data and information on this webpage constitutes investment advice according to our Disclaimer. While we adhere to strict Editorial Integrity, this post may contain references to products from our partners.