The American Bankers Association has warned that allowing stablecoins to offer interest could trigger a massive exodus of deposits from the traditional banking system.
Summary
- American Bankers Association said the White House study missed the key issue, warning that allowing stablecoin yields could trigger deposit outflows from smaller banks.
- Researchers noted that funds could move from community banks to larger institutions, raising funding costs and reducing local lending capacity.
- Industry discussions continue around a Senate bill on crypto oversight, with stablecoin yield restrictions emerging as a key point of debate.
The American Bankers Association (ABA) issued this warning on Monday, countering a recent White House research paper that downplayed the risks of stablecoin competition.
While the Council of Economic Advisers suggested that a ban on stablecoin yields would only marginally boost bank lending by $2.1 billion, the ABA argued that federal officials are focusing on the wrong metrics.
Instead of looking at lending increases, the trade group insists the government must evaluate the threat of deposit flight, citing a 2025 Treasury estimate that suggested popular stablecoin adoption could pull $6.6 trillion out of U.S. banks.
ABA chief economist Sayee Srinivasan and vice president Yikai Wang stated that the “live policy concern” is centered on whether interest-bearing stablecoins will drain funds from smaller, local lenders.
Even if the total money within the financial system stays the same, the researchers believe capital will migrate from community banks toward larger institutions. This would likely force smaller banks to rely on expensive wholesale borrowing, ultimately driving up costs for local borrowers and tightening credit availability in small towns.
Industry leaders from both the banking and crypto sectors are currently in discussions over a pending Senate bill aimed at regulating digital assets.
Negotiators have identified the legality of stablecoin yield payments as a primary obstacle to reaching an agreement before the bill moves to a markup later this month.
Competitive pressure from crypto
The ABA researchers admitted that businesses and households have clear financial reasons to favor stablecoins over traditional accounts. Because digital assets often provide better returns, the banking group acknowledged that customers are naturally incentivized to seek out these higher-paying alternatives.
Coinbase CEO Brian Armstrong has previously challenged the banking sector’s resistance to these yields, pointing out that traditional banks have benefited from paying almost no interest to depositors for years.
Armstrong argued that “stablecoin yield would force banks to compete on a more level playing field.”
The ABA, which represents major Wall Street firms like JPMorgan Chase and Citigroup alongside thousands of smaller lenders, continues to lobby for strict limits on how these digital assets can operate.
