Ronit Ghose, Citi’s head of Future of Finance, warned that paying stablecoin yields could lead to significant bank deposit outflows. He compared the risk to the rise of money market funds in the late 1970s and early 1980s, according to the Financial Times.
Money market funds grew as investors searched for higher returns than regulated banks could offer. Assets expanded from $4 billion in 1975 to $235 billion in 1982, Federal Reserve data showed.
Between 1981 and 1982, withdrawals from bank accounts exceeded new deposits by $32 billion. Ghose said paying interest on stablecoins could create a similar dynamic, where deposits shift out of banks and into digital assets offering better returns.
PwC Analyst Warns of Higher Bank Funding Costs
Sean Viergutz, banking and capital markets advisory leader at PwC, also flagged the impact of stablecoin yields on banks. He said:
“Banks may face higher funding costs by relying more on wholesale markets or raising deposit rates, which could make credit more expensive for households and businesses.”
If consumers move deposits into stablecoins paying interest, banks may need to raise their own deposit rates or borrow more from wholesale markets. This could increase credit costs across the economy.
The concerns highlight how stablecoin yields could affect traditional banking models by forcing institutions to adapt to new competition for liquidity.
Banking Groups Oppose GENIUS Act Loophole
The GENIUS Act bans stablecoin issuers from paying interest directly to holders but does not extend the restriction to crypto exchanges or related businesses. Banks argue this creates a regulatory gap.
The Bank Policy Institute and other groups sent a letter to regulators, warning that the loophole could disrupt lending. They estimated potential bank deposit outflows of $6.6 trillion if consumers moved large sums into higher-yielding stablecoins.
According to these groups, such withdrawals could weaken the ability of banks to provide credit to US households and businesses.
Crypto Industry Pushes Back Against Bank Lobbying
Crypto organizations rejected the banking sector’s arguments. They urged lawmakers not to close the so-called loophole in the GENIUS Act.
The groups said further restrictions on stablecoin yields would favor banks while limiting consumer choice and slowing development of digital dollar products.
They emphasized that stablecoins already serve as widely used dollar-linked instruments in payments, trading, and remittances. They argued that preventing yields would not solve banks’ funding challenges but would limit new financial options.
US Government Backs Stablecoins for Dollar Dominance
The US government has expressed support for dollar-pegged stablecoins as part of its financial strategy. In March, Treasury Secretary Scott Bessent confirmed that stablecoins will be used to keep the US dollar as the leading global reserve currency.
He said:
“We are going to put a lot of thought into the stablecoin regime, and as President Trump has directed, we are going to keep the US [dollar] the dominant reserve currency in the world, and we will use stablecoins to do that.”
Bessent’s statement reinforced the administration’s view that stablecoins strengthen the role of the dollar internationally, even as banks lobby against allowing stablecoin yields.
