Stablecoin growth could siphon trillions from U.S. banks, shrinking lending capacity and raising borrowing costs, as Bank of America warns lawmakers that digital dollars may quietly reshape credit markets and funding across the financial system.
Bank of America Warns Stablecoins Could Drain Bank Deposits
A major U.S. financial institution highlighted potential risks tied to the growth of stablecoins. Bank of America Corp. (NYSE: BAC) warned during its fourth-quarter earnings call on Jan. 15 that stablecoin adoption could affect bank deposits, lending capacity, and borrowing costs across the financial system.
During the call, Chairman and CEO Brian Moynihan answered a question about how interest-bearing stablecoin deposits could reshape funding dynamics for banks and emphasized confidence in the company’s ability to adapt. While emphasizing that Bank of America will be “fine” amid the rise of stablecoins, he clarified: “We’ll meet customer demand, whatever may surface. And so I don’t worry about it.” Turning to broader industry implications, Moynihan said:
“If you look at some studies, I think were done by Treasury … they say you can see upwards of $6 trillion in deposits flow off the liabilities of a banking system as the deposits into the stablecoin environment.”
He described the proposed stablecoin framework as closely resembling money market mutual funds, explaining that regulatory restrictions would require stablecoins to be backed only by short-term assets such as bank deposits, Federal Reserve balances, or U.S. Treasurys. He outlined that such requirements could significantly alter how funds circulate through the banking system, even if individual institutions remain competitive.
Read more: $310 Billion Stablecoin Market Hits New High While Yield Plays Lose Ground
Moynihan explained that the potential shift of deposits outside traditional banks carries consequences for credit availability. He noted:
“When you think about that, that takes lending capacity out of the system. And that is the bigger concern that we’ve all expressed to Congress as they think about this.”
The Bank of America chief explained that moving deposits outside the traditional banking system would reduce banks’ lending capacity, disproportionately affecting small and medium-sized businesses that rely on bank credit, while larger, capital markets-oriented companies can access funding directly from investors. He further clarified that banks experiencing deposit outflows would need to rely on alternative funding sources, noting that wholesale funding typically carries higher costs and could increase borrowing expenses for businesses and consumers. Moynihan characterized the matter as an industrywide policy challenge rather than a threat to Bank of America specifically, while banking trade groups continue engaging lawmakers as stablecoin legislation moves through Congress.
FAQ ⏰
- Why is Bank of America concerned about stablecoin adoption?
Stablecoins could move trillions in deposits out of banks, reducing lending capacity. - How much money could leave banks for stablecoins?
Studies cited by Brian Moynihan estimate up to $6 trillion in deposits could shift. - How could stablecoins affect borrowing costs?
Banks may turn to wholesale funding, which typically raises borrowing costs. - Which borrowers face the biggest risk from deposit outflows?
Small and medium-sized businesses that rely on bank lending could be most impacted.