Warnings that the proliferation of yield-generating stablecoins could weaken the US's lending capacity.
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Bank of America CEO Brian Moynihan said during an earnings conference call on the 15th that allowing interest-bearing stablecoins could lead to an outflow of up to $6 trillion in deposits from U.S. banks. He argued that such a large-scale capital movement could weaken banks' lending capacity and drive up borrowing costs.
Stablecoins function like money market funds.
The remarks came to light after a cryptocurrency investor shared the Bank of America earnings call with Official X. Citing a U.S. Treasury study, Moynihan explained that a significant portion of bank deposits could shift to stablecoins if issuers were allowed to pay interest.
He said that interest-bearing stablecoins would be structured to be held in cash, central bank reserves, and short-term government bonds rather than being used as loans, and that "they would essentially function similarly to money market mutual funds."
Concerns about a credit contraction for small and medium-sized enterprises
Moynihan warned that deposit outflows could shrink bank balance sheets and significantly reduce credit access, particularly for small and medium-sized enterprises (SMEs) that rely heavily on bank loans. He added that the impact would be greatest for companies that have difficulty accessing capital markets.
These remarks come amidst delays in the US Congress's deliberations on the cryptocurrency market structure bill. On the 14th, the US Senate Banking Committee postponed the scheduled markup of the cryptocurrency market structure bill, with Chairman Tim Scott stating that further bipartisan discussions are needed.
Political Clash Over Stablecoin Returns
Whether stablecoin issuers, cryptocurrency exchanges, and third parties distributing tokens can offer yields has emerged as a key point of contention in current congressional negotiations. The banking industry has raised strong concerns that these products could function similarly to unregulated investment vehicles.
In a letter to Congress on the 7th, the Community Bankers' Council warned that "without limits, up to $6.6 trillion in bank deposits could be at risk." The group argued that a run on community bank deposits would directly harm small businesses, farmers, students, and homebuyers.
Industry Reactions to the CLARITY Act Are Mixed
Opinions are divided even within the cryptocurrency industry. On the 15th, Coinbase CEO Brian Armstrong stated that he could not support the Senate Banking Committee's draft bill, saying it would effectively eliminate stablecoin rewards and protect banking competition. He said, "If it's a bad bill, it's better not to have it at all."
Meanwhile, Chris Dixon, managing partner at Andreessen Horowitz Crypto (a16z Crypto), said that while the bill isn't perfect, the CLARITY Act is necessary to ensure the U.S. remains a hub for cryptocurrency innovation.
As the debate surrounding stablecoin yields intensifies, the future of US cryptocurrency regulation is being assessed as a test of conflicting interests across the financial industry.
Reporter Jeong Ha-yeon yomwork8824@blockstreet.co.kr
