Citi Executive Warns Stablecoin Yields Could Drain Bank Deposits

An anonymous reader quotes a report from CoinTelegraph: Paying interest on stablecoin deposits could spark a wave of bank outflows similar to the money market fund boom of the 1980s, Citi's Future of Finance head Ronit Ghose warned in a report published Monday. According to the Financial Times, Ghose compared the potential outflows caused by paying interest on stablecoins to the rise of money market funds in the late 1970s and early 1980s. Those funds ballooned from about $4 billion in 1975 to $235 billion in 1982, outpacing banks whose deposit rates were tightly regulated, Federal Reserve data showed. Withdrawals from bank accounts exceeded new deposits by $32 billion between 1981 and 1982.

Sean Viergutz, banking and capital markets advisory leader at consultancy PwC, similarly suggested that a shift from consumers to higher-yielding stablecoins could spell trouble for the banking sector. 'Banks may face higher funding costs by relying more on wholesale markets or raising deposit rates, which could make credit more expensive for households and businesses,' he said. The GENIUS Act does not allow stablecoin issuers to offer interest to holders, but it does not extend the ban to crypto exchanges or affiliated businesses. The regulatory setup led to a significant reaction by the banking sector.

Several US banking groups led by the Bank Policy Institute have urged local regulators to close what they say is a loophole that may indirectly allow stablecoin issuers to pay interest or yields on stablecoins. In a recent letter, the organization argued that the so-called loophole may disrupt the flow of credit to American businesses and families, potentially triggering $6.6 trillion in deposit outflows from the traditional banking system.

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