US Bank Lobby Says Stablecoin Interest Could Spur Deposit Outflows

US banks are raising concerns about the effect that allowing interest payments on stablecoins could have on the financial system.

Cointelegraph reported on April 14 that the American Bankers Association identified deposit flight from banks as the main risk if stablecoin interest is permitted. The group said funds could move into higher-yielding stablecoins, weakening the traditional deposit base.

The White House Council of Economic Advisers previously estimated that banning interest on stablecoins would increase bank lending by about $2.1 billion, or around 0.02% of the total.

The ABA pushed back on that analysis, saying it did not properly reflect the core issue in the policy debate. The more important question, it said, is not the effect of banning stablecoin interest but the deposit shifts and changes in the financial structure that could follow if it is allowed.

The group said the burden could be heavier for regional and community banks. Even if total deposits remain unchanged, a shift of funds to large banks or stablecoins could increase funding costs for smaller lenders and curb their ability to extend local credit.

It also raised the possibility that some banks would need to rely on more expensive external borrowing to manage those outflows.

The ABA acknowledged that higher-yielding stablecoins could create an incentive for funds to move. In Congress, banks and the crypto industry are continuing to debate the regulatory approach to stablecoins, including whether issuers should be allowed to pay interest.