Why Bank of America Warns Yield-Bearing Stablecoins Could Drain $6 Trillion in Deposits

Bank of America CEO Brian Moynihan has issued a stark warning about the future of traditional banking, cautioning that the rise of yield-bearing stablecoins could drain up to $6 trillion in deposits from the U.S. financial system.

Speaking during the bank's quarterly earnings call, Moynihan cited U.S. Treasury Department studies to illustrate the scale of the potential capital flight, noting that $6 trillion represents roughly 30% to 35% of all commercial bank deposits nationwide. The projection underscores a growing structural conflict between legacy financial institutions and the rapidly expanding digital asset sector over who gets to hold—and profit from—consumer cash.[1]

At the heart of the debate is a fundamental difference in how traditional banks and stablecoin issuers manage money. When a customer deposits funds into a standard savings account, the bank leverages those deposits to issue mortgages, auto loans, and business credit. By contrast, stablecoins—digital tokens pegged to the value of fiat currencies like the U.S. dollar—typically function more like money market mutual funds. Issuers park their reserves in highly liquid, low-risk assets such as short-term U.S. Treasurys, rather than deploying the capital into the broader lending economy.[3]

If stablecoin issuers are legally permitted to pass the yield from those Treasurys directly to token holders, traditional banks fear they will be unable to compete. While the average traditional savings account often pays a fraction of a percent in interest, on-chain stablecoin yields can easily exceed 4%.

Moynihan argued that if depositors chase these higher returns and move their money on-chain, banks will lose their primary source of low-cost funding. To maintain their lending operations, financial institutions would be forced to turn to expensive wholesale funding markets or borrow directly from the Federal Reserve.[1]

This shift in the funding model would have direct consequences for the broader economy, particularly for small and medium-sized enterprises. Unlike large corporations that can raise capital by issuing bonds or stock, smaller businesses rely almost exclusively on traditional bank loans. Moynihan warned that the increased cost of wholesale funding would inevitably be passed on to consumers and businesses in the form of higher interest rates on loans, potentially slowing economic growth and tightening credit availability.[3]

However, the cryptocurrency industry views the banking sector's alarm as an attempt to protect a highly profitable monopoly on consumer deposits. Crypto advocates argue that traditional banks have long benefited from paying near-zero interest to depositors while lending those same funds out at significantly higher rates. From this perspective, yield-bearing stablecoins represent a democratizing force that forces financial institutions to offer more competitive products, ultimately rewarding consumers with a fairer share of the returns generated by their own money.[1][2]

The clash between these two financial models has now moved to Capitol Hill, where lawmakers are attempting to draft a comprehensive regulatory framework for digital assets. A recent draft of the crypto market structure bill, spearheaded by Senate Banking Committee Chair Tim Scott, includes a specific provision that would ban digital asset providers from paying passive interest simply for holding a stablecoin. The proposed legislation aims to prevent stablecoins from directly competing with traditional bank deposits while still allowing the digital asset ecosystem to function.

The draft bill does, however, include carve-outs for activity-based rewards. Under the proposed framework, users could still earn income through active participation in the network, such as providing liquidity, participating in protocol governance, or staking their assets. Despite these exceptions, the legislation has faced fierce pushback from major players in the crypto industry. Coinbase CEO Brian Armstrong publicly withdrew his exchange's support for the bill, arguing that the restrictions on stablecoin rewards would stifle innovation and harm decentralized finance infrastructure.

The intense lobbying from both the banking sector and the cryptocurrency industry recently forced the Senate Banking Committee to postpone a planned markup of the bill, as lawmakers seek a workable compromise. As the legislative debate continues, the stablecoin market itself shows no signs of slowing down. With a total market capitalization now exceeding $310 billion and major financial players integrating digital dollars into their payment networks, the underlying technology is rapidly becoming a mainstream financial utility.[2]

Ultimately, the battle over stablecoin yields highlights a pivotal transition in the global financial system. As digital assets mature from speculative investments into functional payment and savings vehicles, regulators are being forced to decide how to integrate them without destabilizing the legacy institutions that have historically anchored the economy. Whether through legislative compromise or market evolution, the eventual resolution will reshape how millions of consumers store their wealth and earn interest in the digital age.[1]