Ronit Ghose of Citigroup suggested that stablecoin interest payments could trigger a bank deposit flight reminiscent of the 1980s.
According to reports from the UK (Financial Times), Ghose compares the situation to the late 1970s and early 1980s, when money market funds surged from $4 billion to $235 billion over seven years, draining deposits from banks where deposit interest rates were tightly regulated.
This warning comes as major U.S. banking groups lobby Congress to close what they call 'loopholes' in the GENIUS Act, which allows cryptocurrency exchanges and affiliates to offer yields on stablecoins issued by third parties like Circle and Tether.
The banking sector is concerned about large-scale deposit flight.
Banking groups, including the American Bankers Association and the Bank Policy Institute, argue that while the GENIUS Act prohibits stablecoin issuers from paying interest directly, exchanges can still offer rewards to holders through affiliate programs and marketing arrangements.
This regulatory gap could create an unfair competitive environment, with stablecoin platforms attracting depositors with competitive yields (e.g., Nexo), while traditional banks face restrictions on deposit rates and regulatory overhead, limiting their competitiveness.
Sean Viergutz, head of banking and capital markets consulting at PwC, held a similar position in the report, noting that 'banks may face higher funding costs due to increased reliance on wholesale markets or higher deposit rates, which could raise credit costs for households and businesses.'
Bank groups cited Treasury estimates indicating that yield-bearing stablecoins could lead to up to $6.6 trillion in deposit outflows, potentially altering how banks fund loans and manage liquidity.
During the crisis in the 1980s mentioned by Ghose, bank account withdrawals exceeded new deposits by $32 billion between 1981 and 1982 as consumers sought higher returns from money market funds.
Bank deposits are the primary source of funding for loans to businesses and consumers, meaning large-scale capital flight could tighten credit supply and raise borrowing costs across the economy.
Citigroup's contradictory stance on stablecoins.
Ironically, while Ghose warns that stablecoin yields pose systemic risks, Citigroup is actively exploring stablecoin custody services and considering issuing its own digital dollar token.
CEO Jane Fraser confirmed during the July earnings call that Citigroup is 'considering issuing a Citigroup stablecoin' while developing tokenized deposit services for corporate clients seeking 24/7 settlement capabilities.
The bank has already provided blockchain-based dollar transfers between its offices in New York, London, and Hong Kong, positioning itself to occupy the infrastructure layer as stablecoins gain mainstream adoption.
Nevertheless, cryptocurrency industry groups rebutted the banking sector's concerns, with the Committee on Cryptocurrency Innovation arguing that limiting stablecoin yields would 'tilt the competitive landscape in favor of traditional institutions' and stifle consumer choice.
Coinbase Chief Legal Officer Paul Grewal dismissed the banking lobby's efforts, stating on X that lawmakers have 'rejected your unrestrained efforts to avoid competition' during the passage of the GENIUS Act.
Stablecoins reshaping global payment infrastructure.
With stablecoins expected to reach an annual payment volume of $1 trillion by 2028, potentially accounting for 10% of the U.S. money supply, the dynamics of monetary policy are fundamentally changing, and conflicts of interest are unfolding.
Recent research by Keyrock and Bitso also indicates that stablecoins can facilitate payments at 13 times cheaper than traditional banks, while settling in a matter of seconds.
Treasury Secretary Scott Bessent recently expressed support for the adoption of stablecoins on Twitter, stating that 'stablecoins will expand access to billions of dollars globally and lead to a surge in demand for U.S. Treasury securities' as a support asset.
The GENIUS Act includes a 'Libra clause' aimed at preventing major tech companies and Wall Street from dominating the stablecoin market by requiring separate entities to issue them and prohibiting yield payments.
However, platforms like Coinbase and PayPal continue to offer stablecoin rewards, believing that the ban only applies to issuers and not to intermediaries or exchanges.
Looking ahead, as programmable money disrupts old payment systems, the conflict between traditional banks and digital assets is intensifying, with the borderless speed and efficiency of stablecoins positioning them as the trillion-dollar standard for global settlements.
