More than 100 community bank leaders are urging U.S. senators to close what they describe as dangerous loopholes in stablecoin legislation, warning that trillions of dollars could migrate out of traditional bank deposits and undermine local lending across the country. But JPMorgan does not share the ABA’s fears.
In a Jan. 5 letter sent to the Senate, members of the American Bankers Association’s (ABA) Community Bankers Council said stablecoin issuers are increasingly finding ways to offer yield-like incentives, despite a statutory ban on interest payments from issuers directly, threatening to siphon savings away from their vaults that rely on deposits to fund loans to households and small businesses.
“Allowing inducements like interest payments, yield, or rewards could incentivize customers to park their savings not in a bank, but in stablecoins,” the letter states. Treasury estimates cited by the ABA suggest as much as $6.6 trillion in bank deposits could be at risk if such practices continue.
The bankers argue that while the recently passed GENIUS Act brought long-needed oversight to stablecoins, it failed to fully prevent issuers from indirectly compensating users through crypto exchanges and affiliated partners, a workaround they say “swallows the rule.”
“If billions are displaced from community bank lending, small businesses, farmers, students, and home buyers in towns like ours will suffer,” the letter warned, adding that stablecoin-linked firms cannot replace banks’ role in credit creation and do not offer FDIC insurance.
JPMorgan strikes a calmer tone
The alarm raised by community bankers is not universally shared across the banking sector. When asked whether stablecoins pose a systemic risk by drawing savings onto blockchains in search of higher yields, a JPMorgan spokesperson downplayed the threat.
“On background, there have always been multiple layers of money in circulation, including central bank-held money and institutional, commercial money,” the spokesperson told CoinDesk. “This won’t change, there will be different, but complementary, use cases for deposit tokens, stablecoins and all the other forms of payments we have today.”
A familiar warning
The letter marks the latest chapter in a years-long campaign by U.S. banking groups to slow the advance of dollar-backed stablecoins, which now underpin much of the crypto economy and increasingly attract interest from payments firms and fintechs.
Bank trade groups have previously pressed lawmakers to limit stablecoin issuance to regulated banks or to prohibit interest-bearing tokens altogether. Similar warnings surfaced during debates over earlier proposals in Congress and again last year as lawmakers advanced a new stablecoin framework.
“This is not the first time the banking lobby has framed stablecoins as an existential threat,” said Joel Valenzuela, an independent analyst and member of the DASH DAO (decentralized autonomous organization). “Stablecoins present direct competition to the banking system — much more direct than other cryptocurrencies — and banks are trying to protect their interests in the face of disruptive innovation.”
Competition or consumer protection
Supporters of stablecoins argue that the debate is less about safety and more about preserving legacy business models.
“This is less a stablecoin debate and more a question of whether regulation should protect incumbents or enable competition,” said Michael Treacy, commercial director at payments firm OpenPayd. “The same fears were raised when money market funds emerged as an alternative to bank deposits, yet that competition ultimately strengthened pricing, transparency and resilience.”
Others were more blunt. Nima Beni, founder of crypto lender Bitlease, described the letter as “fear-mongering” from an industry reluctant to adapt.
“If trillions flow out, it’s not because of shadowy crypto schemes,” Beni said. “It’s because banks have failed to offer competitive, transparent products in a digital world.”
The ABA renewed push against stablecoins is calling on lawmakers to explicitly extend the GENIUS Act’s prohibition on interest payments to stablecoin affiliates and partners, a move that could have significant implications for crypto exchanges and yield-linked products.
