Stablecoin Will Erode Trillions in Bank Deposits: Regulatory Debate Heats Up

As stablecoins move closer to mainstream global finance, a critical question arises: what will be the fate of traditional deposits in the future? Bank of America CEO, Brian Moynihan, recently answered this question in a concerning way — and it will pose serious challenges for US banking in the coming years.

Real Threats to the US Banking System

Moynihan did not hold back his concerns. During Bank of America’s investor conference where they presented Q4 2025 results, he warned that trillions of dollars could likely shift from traditional bank accounts to stablecoins and related products offering attractive yields or returns.

The figures revealed are quite startling: a potential $6 trillion in deposits could move into the blockchain ecosystem. For context, Bank of America itself closed 2025 with a total of $2 trillion in deposits. Even a small portion of that amount shifting could have serious, systemic impacts.

Why would this be such a huge problem? When deposits leave banks, the banks’ lending capacity automatically shrinks. Banks will no longer be able to lend as much as they did before to households and small businesses. As a result, financial institutions will be forced to rely on wholesale funding — a much more expensive source of capital. These costs will translate into higher loan interest rates, making credit for small and medium-sized enterprises increasingly difficult to access and more costly.

The GENIUS Act Regulation and Remaining Gaps

The US government has attempted to address this issue through the GENIUS Act, a law passed last year aimed at establishing a federal framework for stablecoin issuance. However, many believe that the regulation still leaves significant gaps.

Community bankers, represented by the American Bankers Association (ABA) with over 100 local financial institutions as members, have raised alarms. They identify what they call a “dangerous loophole” in the stablecoin law that would allow stablecoin issuers to effectively offer yields or interest, despite direct legal prohibitions. How? By creating products and incentives similar to returns, moving depositor funds without formally violating the law.

In early January 2026, ABA sent a formal letter to the Senate urging legislators to close this loophole through amendments to the crypto market structure bill. The Senate had discussed some provisions in recent weeks, but momentum stalled after Coinbase withdrew its support for the regulatory initiative.

Divided Views Between Big Banks and the Banking Community

An interesting irony emerges here. While Moynihan and the banking community vehemently oppose stablecoins, other banking giants show a much more relaxed stance. JPMorgan, when asked whether stablecoins pose a systemic risk by attracting deposits, downplayed the threat.

A JPMorgan spokesperson argued that there is always a layer of different money circulating in the economy — from central bank holdings to institutional and commercial funds. They believe stablecoins will be just another layer in the diverse payment ecosystem. “There will be different but complementary use cases for deposit tokens, stablecoins, and all other forms of payment,” they stated.

This difference in perspective reflects an increasing divide within the banking industry. Community banks, which rely on local deposits to fund loans, see stablecoins as an existential threat. Large banks, with access to various funding sources, appear less concerned. They may even continue to grow in the stablecoin era — their ability to adapt will be a competitive advantage.

What Will the Future of Digital Deposits Look Like?

The question policymakers now face is how to balance financial innovation with system stability. If they allow stablecoins to operate without strict restrictions, the traditional banking system could undergo radical transformation — and not all of it will be positive for the local financial sector. But if they impose overly strict regulations, they risk stifling innovations that could bring real benefits to consumers.

What will happen in the near future still depends on legislative evolution. But one thing is clear: the question of “what does will mean for the traditional banking system” has become the most urgent issue in Washington DC and at the headquarters of major banks worldwide.