Stablecoin Interest Sparks Alarm: BofA CEO Warns of $6 Trillion Bank Deposit Exodus

WASHINGTON, D.C. – March 2025. A stark warning from one of America’s most powerful bankers has ignited a fierce debate about the future of money. Bank of America CEO Brian Moynihan recently testified that a single regulatory change—allowing interest payments on stablecoins—could trigger a seismic shift, potentially draining a staggering $6 trillion from the U.S. banking system. This colossal figure represents roughly one-third of all deposits in American commercial banks, posing a fundamental challenge to how credit flows through the economy. The stablecoin interest debate now sits at the heart of contentious negotiations over landmark crypto legislation, forcing policymakers to choose between fostering innovation and protecting the bedrock of traditional finance.

Stablecoin Interest Payments: The $6 Trillion Threat to Banking

Brian Moynihan’s testimony before the Senate Banking Committee framed the issue with unprecedented scale. He argued that structurally, interest-bearing stablecoins function almost identically to money market mutual funds, a $6 trillion industry itself. These digital assets maintain their peg to the U.S. dollar by holding reserves in ultra-safe, short-term instruments like U.S. Treasury bills. Consequently, funds move into stablecoins for yield but remain outside the traditional banking ledger. This structural bypass is the core of Moynihan’s concern. Banks use customer deposits to create loans for mortgages, small businesses, and consumer credit. A rapid migration of deposits into yield-bearing stablecoins would directly shrink the capital pool available for this essential lending activity. Analysts note this isn’t mere speculation; it’s a logical extension of existing financial behavior, accelerated by digital technology.

To understand the potential impact, consider the current landscape. U.S. commercial banks hold approximately $17.4 trillion in deposits. A 35% outflow, as suggested by Moynihan, would reduce that to about $11.3 trillion. The banking sector’s ability to extend credit is directly tied to its deposit base through reserve requirements and lending ratios. A sudden contraction could lead to higher borrowing costs and reduced credit availability, potentially slowing economic growth. Furthermore, the Federal Reserve uses the banking system as the primary transmission mechanism for monetary policy. A significantly smaller deposit base could complicate efforts to manage inflation and employment through tools like interest rate adjustments and reserve requirements.

Anatomy of a Stablecoin: More Than Digital Cash

To grasp why stablecoin interest poses such a disruptive threat, one must first understand what stablecoins are and how they operate. Unlike volatile cryptocurrencies like Bitcoin, stablecoins are designed to maintain a stable value, typically pegged 1:1 with the U.S. dollar. They achieve this stability by holding reserves. There are three primary reserve models:

• Fiat-Collateralized: Each token is backed by a corresponding U.S. dollar held in a bank account. This is the model for giants like Tether (USDT) and USD Coin (USDC).
• Crypto-Collateralized: Backed by other cryptocurrencies, often over-collateralized to absorb price swings.
• Algorithmic: Use smart contracts and algorithms to control supply and demand, with no direct asset backing—a model that has faced significant failures.

The largest and most relevant stablecoins for this discussion are fiat-collateralized. Their issuers, such as Circle (issuer of USDC), generate revenue by investing the reserve dollars in low-risk, liquid assets like short-term U.S. Treasuries. Currently, they generally do not pass this yield on to holders. However, the proposed regulatory frameworks, including the CLARITY Act, could explicitly permit them to do so, transforming stablecoins from pure payment tools into direct competitors for bank savings accounts.

The Banking Industry’s Structural Fear

Moynihan’s comparison to money market funds is particularly insightful. Money market funds exploded in the 1970s and 1980s by offering higher yields than bank savings accounts, which were then subject to interest rate caps (Regulation Q). This led to significant disintermediation, where funds left banks for higher returns elsewhere. The parallel is clear. Today, with bank savings rates often lagging behind money market yields and inflation, the introduction of a digitally-native, easily-transferable asset offering competitive interest could trigger a similar, but faster, exodus. The banking industry fears a repeat of history on a digital scale, where their role as the primary intermediary for savings and loans is fundamentally undermined.

The CLARITY Act: Battleground for Financial Futures

The context for Moynihan’s warning is the ongoing legislative fight over the Crypto-Asset Regulatory Legislation for Innovation and Technology (CLARITY) Act. This bill aims to create the first comprehensive federal framework for digital assets in the United States. A central and highly contested provision involves whether and how stablecoin issuers can pay interest. The crypto industry argues that permitting interest is essential for innovation, consumer choice, and keeping the U.S. competitive with other jurisdictions. They contend that users deserve a return on their digital dollars, just as they do in money market funds or high-yield savings accounts.

Conversely, the banking lobby, led by figures like Moynihan, is pushing for strict limits. Their preferred outcome might involve prohibiting interest payments outright or requiring stablecoin issuers to become fully licensed banks, subject to the same capital, liquidity, and lending requirements. This would level the playing field but could stifle the unique utility of stablecoins. The debate encapsulates a larger philosophical clash: should new digital asset systems be forced into old regulatory boxes, or should new boxes be built to accommodate them? The outcome will set a precedent for the next decade of financial technology.

Global Precedents and the Path Forward

The United States is not operating in a vacuum. Other major economies are already implementing their own stablecoin rules, creating a regulatory arbitrage landscape. The European Union’s Markets in Crypto-Assets (MiCA) regulation, fully applicable in 2025, provides a pathway for licensed stablecoin issuers, with strict rules on reserve composition and custody but without an explicit ban on interest. The United Kingdom is also advancing a regulatory regime that recognizes the potential for stablecoins to offer yield. These developments increase pressure on U.S. lawmakers to act decisively; overly restrictive rules could simply push innovation and capital overseas.

Potential compromise solutions are emerging. One model could involve tiered regulation, where smaller “payment stablecoins” used purely for transactions face interest prohibitions, while larger “investment stablecoins” can offer yield but must comply with securities regulations and enhanced disclosure. Another solution might involve a direct link to the Federal Reserve, such as allowing stablecoin issuers to hold reserves at the Fed and earn interest there, which could then be passed to users in a controlled manner. The path forward requires balancing undeniable innovation with legitimate concerns over systemic stability. The $6 trillion question remains: can a hybrid system emerge where traditional banks and digital asset innovators coexist without destabilizing the core mechanics of credit creation?

Conclusion

Brian Moynihan’s $6 trillion warning on stablecoin interest payments is more than a banking executive protecting his industry’s turf. It is a stark quantification of the high-stakes battle to define the future architecture of money. The debate over the CLARITY Act now carries profound implications for financial stability, economic growth, and technological leadership. Allowing interest on stablecoins could unlock new efficiencies and yields for consumers, but it also risks fragmenting the deposit base that underpins the traditional lending ecosystem. As policymakers weigh these competing visions, the ultimate decision will hinge on a critical judgment: whether the potential benefits of a more competitive, digital-native financial system outweigh the risks of disrupting a system that, for all its flaws, has underpinned the modern economy. The stablecoin interest issue is the fault line where these two worlds collide.

FAQs

Q1: What exactly is a stablecoin?
A stablecoin is a type of cryptocurrency designed to maintain a stable value by being pegged to a reserve asset, most often the U.S. dollar. Unlike volatile cryptocurrencies, their value doesn’t fluctuate wildly, making them suitable for payments and as a digital store of value.

Q2: Why would allowing interest on stablecoins cause money to leave banks?
Consumers and businesses seek the highest safe return on their cash. If stablecoins, which are easy to use digitally, can offer interest rates competitive with or higher than traditional bank savings accounts, a significant portion of deposits would likely migrate to capture that yield, as they did with money market funds decades ago.

Q3: What is the CLARITY Act?
The Crypto-Asset Regulatory Legislation for Innovation and Technology (CLARITY) Act is a proposed U.S. law aimed at creating a comprehensive federal regulatory framework for digital assets, including clear rules for stablecoin issuance, reserves, and operations.

Q4: Are stablecoins currently allowed to pay interest in the U.S.?
The regulatory landscape is unclear. Some platforms have offered yield on stablecoins through lending and staking programs, but these have faced regulatory scrutiny. The CLARITY Act seeks to provide legal clarity, either explicitly permitting or prohibiting the practice under a federal license.

Q5: How do banks make money from deposits if they could lose them to stablecoins?
Banks profit by lending out deposits at higher interest rates than they pay to savers. This net interest margin funds their operations. A loss of low-cost deposits forces them to seek more expensive funding, which can reduce profitability and lead to higher loan rates for consumers and businesses.