Citi executive warns stablecoin yields could drain bank deposits: Report

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 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 from about $4 billion in 1975 to $235 billion in 1982, outpacing banks whose deposit rates were tightly , 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.

Related:

US banks argue against stablecoin yield

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 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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The crypto industry is not having it

The crypto industry , with two industry organizations urging lawmakers to reject proposals to close the “loophole.” The organizations warned that the revisions would tilt the playing field toward traditional banks while stifling innovation and consumer choice.

The US government has emerged as a leading supporter of the adoption of dollar-pegged stablecoins. Treasury Secretary Scott Bessent said in March that to ensure that the US dollar remains the world’s global reserve currency. He said at the time:

“We are going to put a lot of thought into the stablecoin regime, and as President Trump has directed, we are going to keep the US [dollar] the dominant reserve currency in the world, and we will use stablecoins to do that.”

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