Financial experts warn that yields on stablecoins could trigger a massive outflow of capital from traditional banks.
According to a Citigroup executive, the introduction of stablecoin yields could spark a large-scale flight of deposits from banks, echoing what happened in the 1980s with money market funds.
On August 25, Ronit Ghose, head of Citi’s Future of Finance, published a report equating the potential outflows caused by stablecoin yields with the boom in money market funds in the late 1970s and early 1980s, as reported by the Financial Times.
During that period, money market funds grew exponentially from about $4 billion in 1975 to $235 billion in 1982, surpassing banks whose deposit rates were tightly regulated. Federal Reserve data shows that withdrawals from bank accounts exceeded new deposits by $32 billion between 1981 and 1982.
The impact of stablecoins on funding costs
Sean Viergutz, leader of banking and capital markets advisory at PwC, shared concerns about stablecoin yields. According to him, a shift by consumers toward high-yield stablecoins could create serious challenges for the banking sector.
“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,” Viergutz said.
The regulatory battle
The GENIUS Act prohibits stablecoin issuers from offering interest to holders but does not extend this ban to exchanges or affiliated businesses. This regulatory framework has sparked a strong reaction from the banking industry.
Several U.S. banking associations, led by the Bank Policy Institute, have urged local regulators to close what they describe as a loophole that could indirectly allow stablecoin issuers to pay yields.
In a recent letter, the organization argued that this alleged regulatory gap could disrupt the flow of credit to U.S. businesses and households, potentially triggering deposit outflows of $6.6 trillion from the traditional banking system.
The crypto industry’s response
The digital asset industry has not remained silent in the face of banks’ concerns. Two sector organizations have urged lawmakers to reject proposals aimed at closing the so-called “yield loophole.”
They warned that such regulatory changes would tilt the playing field in favor of traditional banks, stifling innovation and consumer choice in the stablecoin sector.
