A growing clash between Wall Street and the crypto industry is now centered on a deceptively simple question: should stablecoins be allowed to pay interest?
fFor large banks, the answer is a clear no. Brian Moynihan, Bank of America’s CEO, has warned that interest-bearing stablecoins could pull trillions of dollars out of the US banking system, fundamentally weakening its ability to support lending.
Key Takeaways
Banks warn interest-bearing stablecoins could pull trillions from deposits
Large deposit outflows would reduce lending, especially to small businesses
Stablecoin yield is a major obstacle in US crypto legislation talks
Crypto leaders are divided over restrictions versus compromise
Moynihan’s concern is rooted in how banks operate. Deposits are not idle cash – they are the core funding source for loans. If stablecoins begin offering yield, they would no longer compete merely as payment tools, but as cash alternatives similar to money market funds. In that scenario, funds would flow into stablecoins backed by cash, central bank reserves, or short-term Treasurys rather than remaining on bank balance sheets.
According to studies cited by the US Treasury, the scale of such a shift could be enormous, potentially reaching several trillion dollars. Moynihan has argued that this would directly reduce credit availability, particularly for borrowers that lack access to capital markets. Small and mid-sized businesses, which rely heavily on traditional bank loans, would be most exposed to tighter credit conditions and higher borrowing costs.
Community banking groups have echoed these warnings, stressing that crypto firms and stablecoin issuers are not designed to replace relationship-based lending or offer insured deposit products. From their perspective, stablecoin yield does not represent innovation, but regulatory arbitrage that bypasses the safeguards banks must follow.
Lawmakers Caught Between Banks and Crypto
These concerns are landing at a sensitive moment in Washington. Progress on crypto market structure legislation has slowed, with Senate committees postponing votes amid deep disagreements. One of the most divisive issues in negotiations over the CLARITY Act is whether yield on stablecoins should be restricted outright.
The crypto industry itself is split. Brian Armstrong has argued that banning or limiting stablecoin rewards would amount to protecting banks from competition, warning that such provisions could undermine the entire bill. He has said the industry would rather see no legislation than one that locks in incumbents’ advantages.
Others take a more pragmatic stance. Chris Dixon believes the bill still needs work, but argues that moving forward with a regulatory framework is critical if the US wants to remain a global leader in crypto and financial innovation.
What makes this debate unusually consequential is scale. Stablecoins already move hundreds of billions of dollars. If allowed to evolve into yield-bearing instruments, they could challenge banks directly for deposits – something regulators have never had to confront in the digital era. The outcome of this fight will shape not just crypto regulation, but how money and credit circulate in the US economy.
