The CEO of Bank of America has warned that billions of dollars could flee bank deposits in the stablecoin sector if the upcoming crypto market structure bill allows for interest payments on tokens.
The Banking System Could Face a $6 Trillion Crisis
On Wednesday, Bank of America CEO Brian Moynihan told investors that the banking industry could face major challenges if the US Congress does not ban interest-bearing stablecoins.
While calling Q4, the official confirmed that up to $6 trillion in deposits, about 30% to 35% of all US commercial bank deposits, could move out of the banking system into the stablecoin sector, citing Treasury Department studies.
The banking industry has criticized the landmark US stablecoin law, the GENIUS Act, for months, saying it has loopholes that could harm the financial system. Notably, the crypto framework prohibits paying interest on the holding or use of stablecoins for payment purposes but only addresses issuers.
Several banking organizations across the US sent a joint letter to the Senate Banking Committee urging Congress to amend the law to include digital asset exchanges, brokers, dealers, and related organizations.
According to a transcript of the call, Moynihan compared digital assets to money market mutual funds, which require reserves to be held in short-term instruments, such as US Treasuries, thereby reducing the volume of borrowing in the system.
That’s a big concern that we’ve all raised in Congress as they think about this, if you take it out of the system, you’re going to reduce the lending capacity of the banks. (…) And if you take out deposits, (…) they will not be able to borrow or they will have to get wholesale funding and that wholesale funding will come at a cost that will increase the cost of borrowing.
The CEO asserted that Bank of America will not be affected by this issue, as the institution will be able to “meet the needs of customers, whatever may arise.” However, he noted that it will hurt small and medium-sized businesses, as “a lot of lending is done to eliminate consumers from the banking industry.”
Stablecoin Rewards Debate Intensifies
Moynihan’s comments come amid the Senate’s struggles over a long-awaited market-making bill. The latest draft shared, which was scheduled to be marked today, has raised concerns among crypto industry leaders, who have pointed out many problems with the bill.
Coinbase CEO Brian Armstrong took to X to share his disappointment with the law, asserting that “this version will be worse than the current situation. We’d rather have a bill than a bad building.”
He confirmed that, after reviewing the draft of the bill, Coinbase could not support it in its current state, arguing that “there are too many problems.” Among the problems, he noted the de facto ban on tokenized equities, the significant ban on DeFi, the “erosion” of the authority of the Commodity Futures Trading Commission (CFTC), and the policies regarding the payment of interest on stablecoins.
As reported by Bitcoinist, this version of the market structure bill introduced significant restrictions for stablecoin issuers. Under the proposed changes, issuers will be able to offer rewards for certain actions, such as opening an account and cash back.
However, they are prohibited from offering interest payments to inactive token holders. For Armstrong, this would “kill rewards for stablecoins,” and allow banks to “hinder their competition.”
Amid the heated debate, Senate Banking Committee Chairman Tim Scott announced Wednesday that the bill’s designation has been postponed in order to “deliver clear rules of the road that protect consumers, strengthen our national security, and ensure that the financial future is built in the United States.”
The total crypto market capitalization is at $3.24 trillion in the one-week chart. Source: TOTAL on TradingView
Featured image from Unsplash.com, Chart from TradingView.com
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