Dangerous Fork in the Road: How Stablecoins as Issuers Threaten the Traditional Banking System

Bank of America CEO Brian Moynihan recently issued a clear warning at the bank’s investor conference: while one of the world’s largest banks is confident in its ability to adapt to the changes brought by stablecoins, the entire financial system could face unprecedented risks. His core point is sharp—if tens of trillions of dollars in deposits flow from traditional banks into stablecoins, the consequences will far exceed the difficulties faced by individual financial institutions.

Moynihan pointed out that the key risk lies in the large-scale transfer of deposits. According to his estimates, up to $6 trillion could be attracted into stablecoins and their derivatives, which offer yields to entice depositors. Such a shift is not just a numbers game; it touches the core operational mechanism of the modern financial system—banks rely on deposits to provide loans to businesses and households. Once deposits flow out on a large scale, banks’ lending capacity will be severely constrained, leading to higher financing costs, with small and medium-sized borrowers feeling the impact first.

Regulatory Gaps in Stablecoin Issuers

The root of the problem lies in the regulatory framework facing stablecoin issuers, which exists in a clear “gray area.” Although the US passed the GENIUS Act in early 2025 to establish federal standards for stablecoin issuers, actual implementation has raised concerns. According to the American Bankers Association (ABA), stablecoin issuers are seeking ways to circumvent regulations by offering incentives that provide yields similar to interest, without directly paying interest.

This “nominal deposits, substantive yields” approach has raised joint vigilance among regulators and traditional banks. In a formal letter submitted to the US Senate in January, the ABA explicitly called for lawmakers to close these “dangerous regulatory loopholes,” urging the creation of stricter rules to prevent stablecoins from becoming direct substitutes for bank deposits. The Senate did attempt to push related amendments during subsequent discussions, but progress stalled after Coinbase withdrew support for the relevant cryptocurrency legislation.

The Clash Between Two Banking Camps

Interestingly, US banking industry views on the threat of stablecoins are not uniform. While Bank of America and the ABA are highly alert to risks, JPMorgan’s stance is relatively moderate. A bank spokesperson recently stated that the financial system has always included multiple forms of money, including central bank-issued currency, institutional money, and commercial money. In their view, the emergence of stablecoins will not change this fundamental fact; rather, it will add new payment options that complement rather than replace the existing banking deposit system.

This difference in perspective reflects the varying pressures faced by banks of different scales. Bank of America manages approximately $2 trillion in deposits, and even a small proportion of that flowing into stablecoins could have a significant economic impact.

Regulatory and Market Tug-of-War

The development of stablecoin issuers is currently caught in a tug-of-war between US regulators and traditional financial institutions. On one side, issuers aim to attract users through innovative yield models; on the other, traditional banks and regulators seek to maintain financial stability through legal means.

While the GENIUS Act is a starting point, it is clearly insufficient to address the evolving market realities. A new Senate proposal to strengthen restrictions on stablecoin issuers faces resistance from industry stakeholders.

The Cost and Opportunity of the Digital Revolution

This debate over stablecoins ultimately points to a deeper question: how can traditional banking systems maintain their role as the lifeblood of the economy in the digital financial era? If tens of trillions of dollars in deposits shift to blockchain-based stablecoins, the supply side of the credit market could face structural constraints, and the ripple effects of rising financing costs could spread throughout the economy.

From Bank of America’s $2 trillion deposit scale, even a small proportion of outflows could significantly impact the financial supply chain. For community banks and small to medium-sized financial institutions, this impact could be even more devastating.

The balance between regulators, issuers, and traditional banks is being reshaped, and this process will largely determine the future role of stablecoins in the financial system, as well as the costs traditional financial institutions will need to bear to adapt to this transformation.