JPMorgan Rejects Fears of Massive Deposit Flight as Community Banks Sound Alarm on Stablecoins
More than 100 community bank leaders are urging U.S. senators to seal what they describe as destabilizing loopholes in the country’s emerging stablecoin regulatory framework, warning that trillions of dollars in traditional bank deposits could shift into digital assets if indirect yield incentives are not curtailed.
But while smaller lenders are sounding the alarm, the country’s largest banks are not echoing their concerns.
In a detailed letter dated Jan. 5, members of the American Bankers Association’s (ABA) Community Bankers Council said stablecoin issuers are increasingly finding workarounds to offer yield-like perks despite a statutory prohibition on interest payments. These incentives, often delivered through crypto exchanges or affiliated partners rather than the issuers themselves, risk encouraging customers to move savings out of federally insured banks and into dollar-backed tokens, the group said.
“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 unaddressed.
Community bankers argue that the GENIUS Act, passed last year to establish federal oversight of stablecoin issuance, did not go far enough in blocking indirect compensation. This loophole, they warn, “swallows the rule” and could siphon capital away from the local lending markets that community banks rely on to support households, small businesses, farmers, and first-time homebuyers across the country.
“If billions are displaced from community bank lending, small businesses, farmers, students, and home buyers in towns like ours will suffer,” the letter warns, adding that stablecoin platforms do not participate in credit creation and cannot replicate the role of FDIC-insured institutions in local economies.
JPMorgan Downplays Systemic Threat
While community banks push senators to tighten restrictions, JPMorgan — the largest U.S. bank by assets and one of the most active institutions in blockchain experimentation — is taking a more measured view.
Asked whether stablecoins could pose a systemic threat by attracting deposits away from banks in search of higher on-chain yields, a JPMorgan spokesperson recently told media that the broader monetary system has always operated with multiple tiers and forms of money.
“On background, there have always been multiple layers of money in circulation, including central bank-held money and institutional, commercial money,” the spokesperson said. “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.”
The remarks suggest that while community banks fear disintermediation, at least some major institutions see stablecoins as an additional payment rail rather than an existential rival.
A Longstanding Battle Between Banks and Stablecoins
The ABA’s warning is the latest in a multi-year campaign by U.S. banking trade groups to slow the expansion of dollar-backed stablecoins, which now underpin much of the crypto economy and have attracted interest from payments giants and fintech firms.
Industry advocates note that similar arguments emerged during debates over earlier stablecoin bills, as well as during last year’s legislative negotiations over a new federal framework. Banks have historically pushed lawmakers to restrict stablecoin issuance to regulated depository institutions or to outlaw interest-bearing tokens entirely.
“This is not the first time the banking lobby has framed stablecoins as an existential threat,” said Joel Valenzuela, an independent analyst and long-time member of the DASH DAO. “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 latest warnings are less about consumer protection and more about preserving incumbents’ 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 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.”
Some were more direct. Nima Beni, founder of crypto lender Bitlease, called the new ABA push “fear-mongering” from an industry hesitant to innovate.
“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.”
With federal stablecoin rules still in flux, the ABA is calling on senators to explicitly extend the GENIUS Act’s ban on interest payments to stablecoin affiliates and partners — a step that could significantly reshape the incentives available across crypto exchanges and yield-linked products.
Whether lawmakers side with community bankers, major institutions, or the crypto sector’s innovators may help determine how quickly — or cautiously — stablecoin markets evolve in the United States.
