Community Banks Warn Stablecoins Could Drain Trillions From U.S. Deposits

More than 100 U.S. community bank leaders are urging senators to tighten stablecoin legislation, warning that loopholes could allow trillions of dollars to flow out of traditional bank deposits and weaken local lending. In a Jan. 5 letter to the Senate, members of the American Bankers Association’s (ABA) Community Bankers Council argued that stablecoin issuers are increasingly offering yield-like incentives, despite rules that prohibit direct interest payments, posing a growing threat to banks that rely on deposits to fund loans.

According to the letter, stablecoin issuers and their partners, including crypto exchanges, are finding indirect ways to compensate users through rewards, incentives, or yield-linked products. The ABA warned that these practices could encourage consumers to move their savings from insured bank accounts into dollar-backed stablecoins, which do not offer FDIC protection. Treasury estimates cited by the group suggest that as much as $6.6 trillion in bank deposits could be at risk if these trends continue.

While the recently passed GENIUS Act introduced long-awaited oversight for stablecoins, community bankers argue it failed to fully close these loopholes. They claim the law does not adequately prevent stablecoin affiliates or partners from offering compensation that effectively mimics interest, undermining the intent of the legislation. The bankers warned that if significant capital is diverted from community banks, small businesses, farmers, students, and homebuyers could face reduced access to credit.

Not all major banks share this concern. JPMorgan downplayed the systemic risk posed by stablecoins, emphasizing that multiple forms of money have always coexisted. A spokesperson said stablecoins, deposit tokens, and traditional payment systems are likely to serve different but complementary roles, rather than replacing one another.

Critics of the ABA’s position argue that the pushback reflects resistance to competition rather than genuine consumer protection. Supporters of stablecoins compare the debate to past concerns over money market funds, which ultimately expanded consumer choice and improved financial transparency. Some industry voices describe the bankers’ warnings as fear-driven, suggesting that if consumers move funds into stablecoins, it may reflect dissatisfaction with traditional banking products.

The ABA is now calling on lawmakers to explicitly extend the GENIUS Act’s ban on interest payments to stablecoin affiliates and partners, a move that could significantly affect crypto exchanges and yield-based digital asset products as the stablecoin market continues to grow.