JPMorgan Chase's Chief Financial Officer, Jeremy Barnum, recently highlighted the potential risks associated with yield-bearing stablecoins, which he believes could lead to the formation of a parallel banking system devoid of traditional regulatory safeguards. During the bank's fourth-quarter earnings call, Barnum emphasized the importance of regulatory oversight in preventing such a development.
The discussion arose in response to a question from Evercore analyst Glenn Schorr, who inquired about the implications of stablecoins amid recent lobbying efforts by the American Bankers Association and ongoing legislative discussions in Congress regarding digital asset regulation. Barnum indicated that JPMorgan's stance is in line with the GENIUS Act, which aims to set regulatory guidelines for stablecoin issuance.
Barnum expressed concern over interest-bearing stablecoins, which mimic the functions of traditional banks by offering deposit-like products with interest, but without the regulatory protections that have been established over centuries. He described this potential scenario as "obviously dangerous and undesirable."
Despite welcoming innovation and competition, Barnum reiterated JPMorgan's opposition to a parallel banking system that operates outside of established regulatory frameworks. This sentiment reflects broader industry apprehension, as indicated by past reports of how the US banking lobby views yield-bearing stablecoins as a potential threat to their business models. These stablecoins offer advantages such as faster transactions and reduced costs, posing a challenge to banks that offer lower interest rates to depositors.
In the legislative arena, stablecoin rewards have become a focal point for US lawmakers, who are debating the Digital Asset Market Clarity Act. This proposal seeks to clarify regulatory jurisdiction and outline supervision for digital asset activities. A recent draft of the legislation suggests prohibiting digital asset service providers from offering interest on stablecoins, aiming to prevent them from acting like traditional bank deposits.
However, the draft allows for rewards linked to broader ecosystem participation, such as liquidity provision, governance, and staking activities, rather than simply holding a stablecoin. This nuanced approach indicates a legislative intent to balance innovation with regulatory oversight.