BofA CEO Sounds Alarm: Interest-Bearing Stablecoins Pose Systemic Risk

Wall Street's old guard just declared war on crypto's hottest innovation.

The Yield Trap

Bank of America's chief executive fired a warning shot across the digital asset bow, targeting the rapid rise of interest-bearing stablecoins. His concern? These instruments aren't just another fintech toy—they're creating shadow banking systems that operate outside traditional regulatory perimeters, potentially concentrating risk where oversight is weakest.

Bypassing the Gatekeepers

These algorithmic yield generators cut out the middleman—your neighborhood bank—offering returns directly on dollar-pegged tokens. They attract capital at a staggering pace, building liquidity pools that rival small banks. But what happens when the music stops? The CEO argues the entire construct lacks the stress-tested safeguards of the conventional system, built to withstand a panic.

The Regulatory Chessboard

Watchdogs are scrambling. Every yield-bearing stablecoin protocol effectively functions as an unlicensed bank, promising stability while engaging in activities that would keep a traditional compliance officer up at night. It's the ultimate regulatory arbitrage—for now. The coming crackdown isn't a matter of 'if,' but 'when' and 'how brutal.'

Finance's New Fault Line

This isn't mere skepticism; it's a battle for the future of liquidity itself. The warning exposes the fundamental tension: decentralized finance promises efficiency and access, but often delivers complexity and hidden leverage. It's the same old speculative chase, just wrapped in a shiny, blockchain-based package—because why learn from history when you can disrupt it?

The genie won't go back in the bottle. Interest-bearing stablecoins are here, growing, and challenging the very architecture of finance. The question for 2026 is whether they'll evolve with guardrails or trigger the next 'unprecedented' meltdown that bankers will later claim they saw coming all along.

Banking deposits are already low

US banks are trying to reconcile the gap between what they pay depositors and what they earn on government securities, and the battle seems almost lost. Per Federal Deposit Insurance Corporation data, the national average savings accounts paying about 0.39%, checking accounts around 0.07%, and money market a meagre 0.58%, while Treasury yields stood at about 3.89% as of mid-December.

The difference is a spread of about 3.82 percentage points, which is a major source of bank profitability. The traditional financial institutions could be looking to protect that margin by fighting what could help consumers count returns on their cash-like holdings.

On page 189 of the Senate’s market structure bill, companies are barred from paying interest simply for holding stablecoin balances, though they may issue rewards only when linked to specific actions like opening accounts, making transactions, staking assets, providing liquidity, posting collateral, or network governance.

“And the key of that is to think that the restrictions to be a stablecoin is basically think of it as a money market mutual fund concept,” Moynihan explained, adding that stablecoin reserves would be limited to deposits, central bank accounts, or short-term Treasuries, not deployed into lending. “And so when you think about that, that takes lending capacity out of the system.”

The impact, according to the banking executive, would fall disproportionately on small and medium-sized businesses, which use bank credit more than capital markets. 

“So I think in the end of the day, at the margin, the industry gets loaned up. And if you take out deposits, they’re not going to — they’re either not going to be able to loan or they’re going to have to get wholesale funding and that wholesale funding will come at a cost that will increase the cost of borrowing.”

Congress is ‘threatening’ banks with proposed stablecoin law

Moynihan is among the trading groups that are pressing legislators to account for the risks stablecoins come with for banking institutions, and he admitted that the lobbyists are uncertain what changes might be made if the bill goes through Congress unopposed.

Opponents of the banking sector on social media have accused lenders of wanting to “preserve profits” at the expense of consumers. Some users on X blasted the industry’s grievances and accused banks of taking advantage of depositors.

“They basically steal all the yield YOUR money earns.. giving you pennies on the dollar. Then they find a laundry list of stupid fees to charge you… Overdraft fees? Yea you got a pay them for being poor. If we draw the line against the bank lobby. Stablecoin yield is where to do it,” said one commenter responding to the BOA head’s sentiments.

As reported by Cryptopolitan, the legislation was initially expected to be marked up today, but has now been pushed to the final week of January. Senate Agriculture Committee Chairman John Boozman confirmed that a scheduled markup meeting was postponed, saying lawmakers had made progress but needed more time.

“I am committed to advancing bipartisan crypto market structure legislation. We have made meaningful progress and had constructive discussions as we work toward this goal,” Boozman said, thanking Senator Cory Booker’s camp for being open to discussing the unresolved policy issues.

The smartest crypto minds already read our newsletter. Want in? Join them.