Paying interest on stablecoin deposits could unleash a banking shock similar to the money market fund boom of the 1980s, according to a new report from Citi’s Future of Finance head Ronit Ghose.
Published Monday, the report warned that higher-yielding stablecoins could attract significant capital away from traditional banks.
Ghose compared the potential outflows to the rapid rise of money market funds in the late 1970s and early 1980s, when bank deposit rates were tightly regulated.
Those funds ballooned from around $4 billion in 1975 to $235 billion by 1982, outpacing banks and leaving them with weaker deposit bases.
Federal Reserve data shows that between 1981 and 1982, withdrawals from bank accounts exceeded new deposits by $32 billion.
Stablecoin Appeal
Sean Viergutz, banking and capital markets advisory leader at PwC, echoed the concern.
“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 comparison underscores how even small shifts in consumer behavior toward higher-yielding products can ripple across the banking sector.
US Banks Push Back
The issue has been brought to the forefront by the GENIUS Act, which prohibits stablecoin issuers from paying interest directly but does not explicitly ban exchanges or affiliated businesses from offering yields.
Banking groups argue that the provision creates a loophole.
The Bank Policy Institute, joined by other industry organizations, urged regulators to close what they say is an indirect pathway for stablecoin issuers to attract deposits through yields.
In a recent letter, they warned the practice could disrupt credit flows to households and businesses.
The organizations even projected potential deposit outflows of up to $6.6 trillion from the U.S. banking system.
Crypto Industry Response
Crypto advocates strongly oppose the push to tighten restrictions.
Two major industry organizations have already urged lawmakers to reject proposals to close the alleged loophole.
They argue that doing so would give banks an unfair competitive advantage, while stifling innovation and consumer choice in the digital asset space.
For many in crypto, the ability to offer yields is not only a competitive feature but also central to the long-term value proposition of stablecoins in finance.
Washington’s Position
The U.S. government has largely positioned itself in favor of stablecoin development.
In March, Treasury Secretary Scott Bessent said the government would use stablecoins to bolster the dollar’s role as the global reserve currency.
“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,” Bessent said at the time.
The statement highlights the political importance of the issue, with stablecoins seen as both a domestic policy matter and a geopolitical tool.
Outlook for Banks and Stablecoins
The debate highlights a growing divide between banks and the digital asset sector.
While banks see stablecoin yields as an existential risk to their deposit base, crypto companies frame them as part of a new financial ecosystem.
The outcome of the regulatory discussion could shape not only the future of stablecoin adoption but also the balance between traditional and digital finance in the U.S.