Bank of America CEO: Interest-Bearing Stablecoins Could Take $6T Out of Bank Deposits

Interest-bearing stablecoins could take $6 trillion out of bank deposits according to Bank of America’s CEO, who argued that small-to-medium-sized businesses could be hurt as a result.

Brian Moynihan’s statements, citing data from U.S. Treasury reports, come amid controversy about whether to allow amendments to the recently delayed crypto bill being debated by the Senate Banking Committee. The most recent draft would prohibit idle stablecoins from bearing interest, like a bank account.

The draft legislation, released Monday, would ban firms from offering yields on stablecoin deposits, unless they are granted due to activities such as transactions, remittances, or membership in loyalty programs.

On a recent quarterly earnings call, Moynihan compared the financial structure of stablecoins to that of a “money market mutual fund,” where deposited cash is invested in low-risk, short-term debt securities like U.S. treasury bills. He argues this means interest bearing stablecoins would therefore “take lending capacity out” of the traditional banking system.

Moynihan said BoA has told Congress about its concerns regarding how this would impact smaller companies. He highlighted how these smaller companies are generally more likely to be lent money via banks, as opposed to large companies, which raise money via capital markets, for example, via an IPO.

The CEO predicted that funds moving into stablecoins could ultimately increase the cost of borrowing. Moynihan said banks are either “not going to be able to loan or they’re going to have to get wholesale funding,” adding that this would increase the overall cost of borrowing. In this context, wholesale funding is money for loans not derived from customer deposits, for example, from a Central Bank or capital markets.

Coinbase pushes back

Brian Armstrong, CEO of crypto exchange Coinbase, has argued in the opposite direction of the bank, with his company officially withdrawing support for the bill.

In a recent tweet, he accused the Senate of drafting amendments that “would kill rewards on stablecoins, allowing banks to ban their competition.”

Armstrong criticised numerous other aspects of the bill, including restrictions on tokenized equities, and elements which could increase government surveillance of crypto transfers. 

“Crypto needs to be treated on a level playing field with the rest of financial services so we can build this industry in a safe and trusted way in America,” said Armstrong.

Radi El Haj, CEO at payments firm RS2, told Decrypt that “regulation should focus on risk management and consumer protection” and “not on preventing competition.” He predicts that banks will “need to adapt their products, pricing, and technology stacks” to compete with stablecoins.

“If deposits migrate, it is because customers are responding rationally to better value and greater flexibility.”