U.S. banks cry out in distress: $6.6 trillion fleeing! JPMorgan responds by saying stablecoins are complementary, not enemies

American Bankers Association letter to the Senate on January 5th warns that if stablecoins can pay interest, it could lead to a $6.6 trillion deposit outflow, impacting lending capacity. JPMorgan Chase counters that stablecoins and deposits are complementary tools, not zero-sum. OpenPayd CEO believes competition can strengthen the market, while Bitlease founder criticizes banks for spreading fear; the main reason for capital outflow is the lack of competitive banking products.

Predicted Disaster of $6.6 Trillion Deposit Outflow

(Source: American Bankers Association)

On January 5th, the Community Bankers Committee under the ABA sent a letter to the Senate urging Congress to address loopholes in the “GENIUS” stablecoin regulation bill. Bank industry representatives worry that although the “GENIUS Act” restricts stablecoins from paying interest, crypto firms are still offering incentives similar to deposit interest through various means, attempting to pull large amounts of funds from traditional banking systems.

Bankers warn that if the U.S. government allows stablecoins to pay interest or rewards, depositors will prefer to park their funds in crypto assets rather than bank accounts, risking a potential $6.6 trillion in bank deposits to flow out nationwide. This amount is roughly one-third of total U.S. banking deposits. If it occurs, it would be one of the largest capital migrations in financial history.

This outflow would directly impact local banks that rely on deposits to operate, affecting their ability to lend to families and small businesses. Banks’ business model depends on “interest rate spreads”: attracting deposits at lower rates and lending at higher rates to earn the difference. If large amounts of deposits shift to stablecoins, banks will lose their funding source, forcing them to reduce lending or raise loan rates, ultimately harming small and medium-sized enterprises and households that need loans.

Unlike banks, crypto companies tied to stablecoins do not create credit and lack FDIC insurance protection like bank deposits. In case of risk, consumers lack safeguards. The ABA’s argument highlights a core weakness of stablecoins: while they offer higher yields and faster transfers, their safety and systemic risk are far higher than regulated bank deposits.

Three Core Risks Bankers Worry About

Massive Deposit Outflow: $6.6 trillion (about one-third of total deposits) may flow into stablecoins

Credit Tightening Effect: Local banks lose funding sources, forcing reductions in loans to SMEs and households

Lack of Consumer Protection: Stablecoins are not FDIC insured; issuer failures could wipe out users’ funds

Systemic Risk Accumulation: Stablecoins lack credit creation functions but could trigger bank runs

The ABA’s letter emphasizes the enforcement loopholes of the “GENIUS” bill. Although the bill explicitly bans stablecoins from “paying interest,” some crypto platforms have begun offering yields under the guise of “rewards,” “cashback,” or “liquidity mining.” These products are not legally classified as “interest,” but their actual effect is similar to bank deposit interest. Industry experts see this as a blatant violation of the regulatory intent and call for Congress to explicitly prohibit any form of stablecoin yield mechanisms.

JPMorgan’s Counterattack and Complementary View

While community banks in the U.S. are on high alert, major banking giants and the crypto industry hold different views. According to CoinDesk, JPMorgan spokesperson responded to concerns that stablecoins could drain bank deposits and pose systemic risks, stating that multiple forms of currency already exist in the financial system, including central bank money and commercial bank money, and that deposit tokens and stablecoins will be complementary payment tools rather than zero-sum.

JPMorgan’s argument is based on a deep understanding of financial evolution. Historically, new forms of money have faced fierce opposition from vested interests. When money market funds emerged in the 1970s, banks warned it would destroy bank deposits, but ultimately both coexisted. The rise of credit cards was also seen as a threat to checks and cash, but in reality, they expanded payment options.

Michael Treacy, Business Director at payment company OpenPayd, believes the core of the debate between U.S. banks and stablecoin companies is whether regulation is meant to protect vested interests or promote competition. He compares this to the emergence of money market funds, noting that competition ultimately enhances market pricing and transparency. This perspective challenges the protectionist logic of banks, suggesting that if banks are truly worried about deposit outflows, they should improve their services rather than seek regulatory shields.

Nima Beni, founder of crypto lending platform Bitlease, is more direct. He states that the banks’ letter is spreading fear; if capital is truly flowing out, the main reason is that banks have failed to offer competitive, transparent digital products in the digital age, not because of crypto conspiracies. This hits the core issue: when bank savings interest rates are near zero, and stablecoins can earn 4-5% by investing in government bonds, rational users will choose the latter.

It’s noteworthy that JPMorgan itself is developing its own stablecoin, JPM Coin. As one of the world’s largest banks, JPMorgan clearly sees stablecoins as an inevitable part of financial innovation rather than a threat to resist. This attitude reveals a strategic divide: big banks can participate and lead in the stablecoin market, while smaller community banks are on the defensive.

Loopholes in the GENIUS Bill and Legislative Battles

As the Senate begins to craft a more comprehensive crypto asset regulatory framework, whether stablecoins can offer yields and whether the “GENIUS” bill needs further revision have become key battlegrounds between banking and crypto industries. The final outcome of this legislative contest will determine the role of stablecoins in the U.S. financial system and redefine the competition and cooperation between emerging fintech and traditional banks.

For community banks relying on deposit interest spreads, maintaining regulatory compliance will be crucial for future survival. However, history shows that waves of technological innovation are often hard to stop with regulation. Once users experience the convenience and yields of stablecoins, it’s difficult to revert to the inefficiency of traditional banking systems. The banking industry’s real need may not be stricter regulation but digital transformation and product innovation.

From a political economy perspective, this dispute also reflects internal conflicts under the Trump administration’s “crypto-friendly” policy. On one hand, the government aims to make the U.S. a global crypto hub, encouraging innovation and competition; on the other hand, traditional banking is the backbone of the U.S. financial system, and its stability is vital for overall economic security. Balancing these interests will test lawmakers’ wisdom.