Why U.S. Banks Are Opposing Interest-Bearing Stablecoins

Original | Odaily Planet Daily (@OdailyChina)

Author | Azuma (@azuma_eth)

With Coinbase's temporary "reversal" and the postponement of the Senate Banking Committee's review, the Cryptocurrency Market Structure Act (CLARITY) has once again fallen into a period of stagnation.

• Odaily Note: For previous context, please refer to "..."The biggest variable in the post-encryption market: Can the CLARITY Act pass through the Senate?" and "Why has the CLARITY review been abruptly postponed, and why is there such significant disagreement within the industry?》.

Considering the current market debates,The biggest point of contention surrounding CLARITY has focused on "interest-bearing stablecoins."Specifically, last year's GENIUS Act, in order to gain support from the banking industry, explicitly banned interest-bearing stablecoins. However, the bill only stipulated that stablecoin issuers could not pay "any form of interest or returns" to holders, without restricting third parties from offering returns or rewards. The banking industry was very dissatisfied with this "workaround" and attempted in the CLARITY Act to start over and comprehensively ban all forms of interest-bearing mechanisms. This, however, has drawn strong opposition from some cryptocurrency groups, represented by Coinbase.

Why are banks so resistant to interest-bearing stablecoins, going to great lengths to block all avenues for generating returns? The goal of this article is to thoroughly answer this question by analyzing the profit-making models of major U.S. commercial banks.

In the statement against interest-bearing stablecoins,The most common argument from banking representatives is "concern that stablecoins could cause a withdrawal of bank deposits." — Brian Moynihan, CEO of Bank of America, stated during a conference call last Wednesday: "Up to $6 trillion in deposits (accounting for 30% to 35% of all commercial bank deposits in the U.S.) could potentially shift into stablecoins, which would limit banks' ability to lend to the broader U.S. economy... and interest-bearing stablecoins could accelerate the outflow of deposits."

However, anyone with a basic understanding of how stablecoins operate can see that this statement is highly misleading. When $1 flows into a stablecoin system like USDC, that $1 does not simply vanish. Instead, it is deposited into the reserves of the stablecoin issuer, such as Circle, and eventually re-enters the banking system in the form of cash deposits or other short-term liquid assets (e.g., Treasury bonds).

• Odaily Note: This discussion does not consider stablecoins that rely on other mechanisms such as crypto asset collateral, futures-spot hedging, or algorithmic models. First, because such stablecoins represent a relatively small portion of the market; second, because these stablecoins fall outside the scope of this article's discussion on compliant stablecoins under the U.S. regulatory framework. Last year's GENIUS Act clearly defined reserve requirements for compliant stablecoins, limiting reserve assets to cash, short-term U.S. Treasury securities, or central bank deposits, and requiring that these reserves be segregated from operating funds.

So the implementation is very clear,Stablecoins do not cause a withdrawal of bank deposits, as the funds ultimately flow back into banks and can be used for credit intermediation.This depends on the stablecoin's business model and has nothing to do with whether it generates interest or not.

The key issue lies in the changes in the deposit structure after the capital flows back.

Before analyzing this change, we need to briefly introduce the interest-earning business of major U.S. banks.

Scott Johnsson, General Partner of Van Buren Capital CitationA paper from the University of California, Los Angeles stated that since the 2008 financial crisis damaged the credibility of the banking industry,U.S. commercial banks have differentiated into two distinctly different forms in terms of deposit-taking businesses — high-interest-rate banks and low-interest-rate banks.

High-interest banks and low-interest banks are not formal classifications in a regulatory sense, but rather common terms used in the market context —— In terms of appearances, the interest rate differential between high-interest banks and low-interest banks has already exceeded 350 basis points (3.5%).

Why would the same deposit amount result in such a significant difference in interest? The reason is that banks offering high interest rates are often digital banks or banks with business structures that emphasize wealth management and capital market operations (such as Capital One). These banks rely on high interest rates to attract deposits, which in turn support their lending or investment businesses. Conversely,Low-interest rate banks are mainly national large commercial banks that hold the actual authority in the banking industry, such as Bank of America, Chase Bank, and Wells Fargo.They have a large retail customer base and payment networks, enabling them to maintain extremely low deposit costs by leveraging customer stickiness, brand effects, and the convenience of their branch networks, thus avoiding the need to compete for deposits with high interest rates.

From the structure of deposits, high-interest banks typically rely mainly on non-transactional deposits, which are primarily used for savings or earning interest income. Such funds are more sensitive to interest rates and also entail higher costs for banks.Banks with low interest rates typically focus on transactional deposits, which are primarily used for payments, transfers, and settlements. The characteristics of such funds include high stickiness, frequent turnover, and extremely low interest rates, making them the most valuable liabilities for banks.

The latest data from the Federal Deposit Insurance Corporation (FDIC)Display,As of mid-December 2025, the average annual interest rate for savings accounts in the United States was only 0.39%.

Note that this data already factors in the impact of high-interest banks. Since most major U.S. banks operate under a low-interest model, the actual interest paid to depositors is even lower than this level — Mike Novogratz, founder and CEO of Galaxy, told CNBC. InterviewAt that time, Shi Zhengtian stated that large banks paid almost zero interest to depositors (approximately 1 to 11 basis points), while the Federal Reserve's benchmark interest rate during the same period ranged between 3.50% and 3.75%. This interest rate spread generated substantial profits for banks.

Coinbase's Chief Compliance Officer, Faryar Shirzad, provided a clearer calculation: major U.S. banks earn $17.6 billion annually from the approximately $3 trillion in funds held at the Federal Reserve, and an additional $18.7 billion annually from transaction fees charged to depositors.Just the interest rate differential and payment transaction fees alone generate more than 36 billion U.S. dollars in revenue each year.

Back to the main topic, what changes will a stablecoin system bring to the structure of bank deposits? How will interest-bearing stablecoins further accelerate this trend? The logic is actually very simple: what are the use cases for stablecoins? The answer is basically payment, transfer, settlement, and so on. Doesn't this sound very familiar?

As mentioned earlier, the aforementioned functionality is precisely the core utility of transactional deposits. Not only are these the primary type of deposits for major banks, but they also represent the most valuable liabilities for banks. Therefore, the banking industry's true concern regarding stablecoins lies in —— Stablecoins, as a new medium of exchange, can directly compete with transactional deposits in terms of use cases.

If stablecoins do not offer interest-earning capabilities, that would be fine. Considering the existing usage barriers and the slight interest advantage of bank deposits (even a small amount is still something), stablecoins are unlikely to pose a significant threat to this core area of large banks.Once stablecoins are given the potential to generate interest, the drive for interest rate differentials may lead an increasing amount of funds to shift from transactional deposits to stablecoins.Although these funds will eventually flow back into the banking system, stablecoin issuers, motivated by profit, will inevitably invest most of their reserves in non-trading deposits, keeping only a certain percentage of cash reserves to meet daily redemption needs.This is what is known as a change in the deposit structure — although funds remain within the banking system, banks' costs will significantly increase (with compressed net interest margins), and income from transaction fees will also sharply decline.

At this point, the essence of the problem has become very clear.The reason the banking industry fiercely opposes interest-bearing stablecoins has never been about "whether the total amount of deposits within the banking system will decrease," but rather about potential changes in the structure of deposits, and the resulting issues of profit redistribution.

In an era without stablecoins, especially interest-bearing stablecoins, major U.S. commercial banks firmly controlled transactional deposits as a "zero-cost or even negative-cost" source of funding. They could earn risk-free profits through the interest rate spread between deposit rates and benchmark rates, and also continuously collect service fees through basic financial services such as payments, settlements, and clearing, thereby creating a highly stable and nearly self-contained system that required almost no profit-sharing with depositors.

The emergence of stablecoins, in essence, is breaking down this closed loop.On one hand, stablecoins closely resemble transactional deposits in functionality, covering core scenarios such as payments, transfers, and settlements. On the other hand, interest-bearing stablecoins introduce the variable of yield, enabling funds that were previously insensitive to interest rates to potentially be re-priced.

In this process,The funds do not leave the banking system, but banks may lose control over the profits from these funds. — Originally low-cost or nearly cost-free liabilities are now being forced to convert into liabilities requiring market-based returns; originally payment handling fees exclusively collected by banks are now being shared by stablecoin issuers, wallets, and protocol layers.

This is the kind of change the banking industry truly cannot accept. Understanding this makes it easier to see why interest-bearing stablecoins have become the most contentious and hardest-to-compromise issue in CLARITY's journey toward progress.