Short Description
Bank of America’s CEO Brian Moynihan warns that interest-bearing stablecoins could drain $6 trillion from US banks, affecting lending capacity and borrowing costs.
Read Time
3 minutes and 45 seconds.
Main Article
In a recent earnings call, Bank of America CEO Brian Moynihan raised significant concerns about the emerging trend of interest-bearing stablecoins. He noted that if these financial instruments were allowed to pay interest, they could potentially siphon off up to $6 trillion from the traditional banking system. Moynihan believes that such a large-scale migration of deposits could seriously reduce the lending capacity of banks, thus escalating borrowing costs for consumers and businesses alike, particularly impacting small and mid-sized enterprises (SMEs) that rely heavily on bank loans for financing.
Moynihan pointed out research highlighted by the Treasury, indicating that a notable percentage of bank deposits are susceptible to shifting into stablecoins if these products operate similarly to money market mutual funds. Here, funds would be held in cash, central bank reserves, or short-term Treasurys rather than being actively used for lending. This scenario paints a grim picture for credit availability, especially for those sectors where access to loans is crucial for operations and growth.
Additionally, these comments surfaced amid stalled developments in crypto legislation in the US. The Senate Banking Committee recently delayed the consideration of a crucial crypto market structure bill, emphasizing the need for bipartisan discussions. Many banking groups share Moynihan’s worries about stablecoins, arguing they function as unregulated investment products. The Community Bankers Council even communicated to Congress that billions in bank deposits could be at risk without appropriate restrictions, as crypto exchanges and related entities aren’t tailored to fill the resulting lending gap.
The ongoing debate about whether stablecoin issuers should be permitted to offer yields adds another layer of complexity to the legislative process. Industry stakeholders are divided on the implications of the CLARITY Act, a bill intended to streamline the regulatory framework for digital assets. While some leaders, like Coinbase CEO Brian Armstrong, voice strong opposition to provisions that undermine stablecoin rewards, others, such as a16z Crypto’s Chris Dixon, acknowledge the necessity of advancing the bill to maintain the US’s competitive edge in crypto innovation.
Short Summary
Bank of America’s CEO warns that interest-paying stablecoins could withdraw up to $6 trillion from US banks, diminishing lending capacity and raising borrowing costs. The ongoing legislative discussions surrounding stablecoins and the CLARITY Act remain crucial for both finance and crypto sectors.
