Bank of America's CEO, Brian Moynihan, recently highlighted a potential challenge to the US banking sector from interest-bearing stablecoins. During an earnings call, Moynihan referred to studies from the Treasury Department, suggesting that these stablecoins could entice up to $6 trillion away from traditional banks.
Moynihan warned that the migration of such a large volume of deposits would significantly impact banks' lending capabilities, particularly affecting small and mid-sized businesses that heavily depend on bank loans. He likened interest-bearing stablecoins to money market mutual funds, as they would hold reserves in cash, central bank reserves, or short-term Treasurys rather than being used for lending purposes.
This discussion arises amidst a backdrop of stalled legislative progress on cryptocurrency regulations in the United States. Recently, the US Senate Banking Committee delayed the markup of a crypto market structure bill, initially set for Thursday, to allow for further bipartisan discussions.
A major point of contention in Congress is whether stablecoin issuers or associated entities should be allowed to provide yield on their tokens. Banking organizations argue that yield-bearing stablecoin products resemble unregulated investment offerings and advocate for closing regulatory loopholes.
In a letter dated January 7 from the Community Bankers Council to lawmakers, the council echoed Moynihan's concerns, cautioning that up to $6.6 trillion in bank deposits could be jeopardized without proper restrictions. They emphasized the potential harm to community lending sectors, including small businesses and farmers, should substantial funds shift away from bank lending.
The debate over the CLARITY Act, which aims to solidify the regulatory framework for digital assets, continues. While the House of Representatives has passed the bill, it awaits consideration in the Senate. Coinbase CEO Brian Armstrong recently criticized the current draft, arguing it could stifle competition by eliminating rewards on stablecoins.
Conversely, Chris Dixon of a16z Crypto expressed a more positive outlook, suggesting that although the bill is not perfect, it is an essential step for the US to maintain its leadership in crypto innovation.
These developments reflect the ongoing discussions and negotiations as regulators, banks, and the crypto industry seek to balance innovation with stability in the financial system.