Stablecoin Threatens Fund Flows from Traditional Banking, Bank of America Warns

The growth of stablecoins is beginning to shake the modern banking system. In the Q4 2025 earnings presentation, Bank of America CEO Brian Moynihan warned that trillions of dollars in deposits could shift to the blockchain ecosystem, creating significant challenges for the existing financial infrastructure. This threat is not just about digital competition but about how the fundamental funds supporting the real economy can be reallocated.

Potential Transfer of $6 Trillion: When Deposits Move Places

Moynihan emphasized his main concern with striking figures: approximately $6 trillion in deposits are at risk of being diverted from traditional banks to stablecoins and related products that offer returns similar to interest. Bank of America itself closed 2025 with $2 trillion in deposits, providing a concrete perspective on the scale of this risk. What makes this situation different from previous digital challenges is its hidden mechanism—stablecoin issuers have found regulatory loopholes to offer yield-like incentives without paying interest directly.

Moynihan clearly explained the economic implications: when deposits exit a bank’s balance sheet, its lending capacity shrinks directly. Banks losing their deposit base must rely on wholesale funding, which is much more expensive. As a result, borrowing costs will rise, and small and medium-sized enterprises will feel the first impact of this spending cycle.

Industry Fractures: Between Warnings and Neglect

Interestingly, not all banking institutions share the same level of concern. When asked about systemic risks of stablecoins, a JPMorgan spokesperson downplayed the threat. They argued that there will always be various layers of money in the economy—from central bank money to institutional deposits—and stablecoins will only serve as an alternative payment tool that complements, not replaces, the existing system.

Conversely, the American Bankers Association (ABA), representing more than 100 community financial institutions, is much more aggressive. They formally urged the U.S. Senate to close what they call a “dangerous loophole” in stablecoin legislation. This perspective reflects genuine concerns from regional banks that rely on deposits to fund local loans to businesses and households.

Regulatory Debate: GENIUS Act and Efforts to Improve

The GENIUS Act, passed last year, created a federal framework for stablecoin issuers but left an important gap. Provisions in the Cryptocurrency Market Structure Bill currently being discussed in the Senate over the past few weeks aim to close this loophole, particularly by restricting stablecoins from functioning like interest-bearing deposits.

RBC Capital Markets analyst Gerard Cassidy questions whether policymakers will act quickly and decisively enough. In an official letter sent by ABA on January 5 to the Senate, they detailed the hidden mechanisms that allow stablecoin issuers to pay yields without technically paying interest—strategies that blur legal lines and divert deposit funds from the traditional banking system.

Long-term Implications: From Borrowing Costs to Systemic Stability

The economic impact of this massive fund flow cannot be underestimated. If a significant portion of deposits shifts to blockchain, banks will experience a reduction in their capital base for lending. This is not just a matter of thinner margins; it raises questions about the banking system’s capacity to support economic growth and small business investments.

Moynihan stated that Bank of America “will be fine” and will adapt to any customer demands that arise. However, this is a statement about the resilience of a large institution, not about the broader health of the banking system. The concerns he expressed to Congress indicate that the industry is aware of potential systemic impacts that have not yet been fully predicted by policymakers.

Currently, regulatory battles continue with fluctuating momentum. Coinbase recently withdrew its support for certain legislative proposals, shaking legislative momentum. However, the banking community’s calls for stronger safeguards remain a constant pressure on the policymaking process.

Ultimately, this debate is about the design choices of the financial system: whether to allow the flow of funds to fragment across various blockchain protocols or to maintain the traditional banking ecosystem as the backbone of lending and economic growth. The decisions made will shape the financial landscape of the next decade.