BofA CEO warns against interest-bearing stablecoins

Bank of America Chief Executive Brian Moynihan is telling lawmakers that forcing stablecoin issuers to pay interest could take trillions away from banks, reduce lending capacity, and raise borrowing costs in the US economy.

In its latest market structure bill, unveiled on Tuesday, the Senate Banking Committee discussed restrictions on stablecoin yields.

Moynihan, speaking on the competitive impact of stablecoins, said Bank of America would adapt regardless of regulatory outcomes, although he insists the banking system would face a liquidity crunch. 

“So I think I would not, look, we’ll be fine. We’ll have the product. We’ll meet customer demand, whatever may surface. And so I don’t worry about it,” Moynihan surmised, before citing a US Treasury-commissioned research of how dire deposit migration could be.

According to those studies, as explained by the BOA CEO, as much as $6 trillion in deposits could flow off bank balance sheets into stablecoin vehicles if consumers see themselves taking higher yields outside the regulated banking system. 

Banking deposits are already low

US banks are trying to reconcile the gap between what they pay depositors and what they earn on government securities, and the battle seems almost lost. Per Federal Deposit Insurance Corporation data, the national average savings accounts paying about 0.39%, checking accounts around 0.07%, and money market a meagre 0.58%, while Treasury yields stood at about 3.89% as of mid-December.

Screenshot of Bank of America Q4 earnings. Source: X.

The difference is a spread of about 3.82 percentage points, which is a major source of bank profitability. The traditional financial institutions could be looking to protect that margin by fighting what could help consumers count returns on their cash-like holdings.

On page 189 of the Senate’s market structure bill, companies are barred from paying interest simply for holding stablecoin balances, though they may issue rewards only when linked to specific actions like opening accounts, making transactions, staking assets, providing liquidity, posting collateral, or network governance.

“And the key of that is to think that the restrictions to be a stablecoin is basically think of it as a money market mutual fund concept,” Moynihan explained, adding that stablecoin reserves would be limited to deposits, central bank accounts, or short-term Treasuries, not deployed into lending. “And so when you think about that, that takes lending capacity out of the system.”

The impact, according to the banking executive, would fall disproportionately on small and medium-sized businesses, which use bank credit more than capital markets. 

“So I think in the end of the day, at the margin, the industry gets loaned up. And if you take out deposits, they’re not going to — they’re either not going to be able to loan or they’re going to have to get wholesale funding and that wholesale funding will come at a cost that will increase the cost of borrowing.”

Congress is ‘threatening’ banks with proposed stablecoin law

Moynihan is among the trading groups that are pressing legislators to account for the risks stablecoins come with for banking institutions, and he admitted that the lobbyists are uncertain what changes might be made if the bill goes through Congress unopposed.

Opponents of the banking sector on social media have accused lenders of wanting to “preserve profits” at the expense of consumers. Some users on X blasted the industry’s grievances and accused banks of taking advantage of depositors.

“They basically steal all the yield YOUR money earns.. giving you pennies on the dollar. Then they find a laundry list of stupid fees to charge you… Overdraft fees? Yea you got a pay them for being poor. If we draw the line against the bank lobby. Stablecoin yield is where to do it,” said one commenter responding to the BOA head’s sentiments.

As reported by Cryptopolitan, the legislation was initially expected to be marked up today, but has now been pushed to the final week of January. Senate Agriculture Committee Chairman John Boozman confirmed that a scheduled markup meeting was postponed, saying lawmakers had made progress but needed more time.

“I am committed to advancing bipartisan crypto market structure legislation. We have made meaningful progress and had constructive discussions as we work toward this goal,” Boozman said, thanking Senator Cory Booker’s camp for being open to discussing the unresolved policy issues.

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