{"id":26495,"date":"2025-08-26T11:23:29","date_gmt":"2025-08-26T08:23:29","guid":{"rendered":"https:\/\/forklog.com\/en\/?p=26495"},"modified":"2025-08-26T12:52:22","modified_gmt":"2025-08-26T09:52:22","slug":"citi-warns-of-stablecoin-threat-to-banks","status":"publish","type":"post","link":"https:\/\/forklog.com\/en\/citi-warns-of-stablecoin-threat-to-banks\/","title":{"rendered":"Citi Warns of Stablecoin Threat to Banks"},"content":{"rendered":"

The payment of interest on deposits in stablecoins could trigger a mass exodus of deposits from the banking system, warned Ronit Ghose, head of financial services at Citi, according to FT<\/a>.<\/p>\n

The expert likened the situation to the boom in money market funds in the United States during the 1980s. At that time, their volume grew from $4 billion to $235 billion over seven years, and the outflow of funds from financial institutions exceeded the inflow by $32 billion, according to <\/a>data<\/a> from the Federal Reserve<\/span>.<\/p>\n

This view is shared by PwC consultant Sean Virkuts. He suggests that a shift by clients to higher-yielding stablecoins will force banks to raise deposit rates. Consequently, loans for individuals and businesses will become more expensive.<\/p>\n

Banking Demands<\/h2>\n

Banking groups led by the Bank Policy Institute have called on<\/a> legislators to reconsider the new law regulating stablecoins. They fear that the rules will provoke a deposit outflow of trillions of dollars into the crypto industry.<\/p>\n

The conflict centers around the GENIUS Act<\/a>. The document prohibits stablecoin issuers from paying interest to coin holders. This means that banks, when issuing their own assets, will not be able to offer returns on them.<\/p>\n

However, the law does not prevent crypto exchanges from accruing rewards and interest on stablecoins from third-party issuers like Circle or Tether.<\/p>\n

Bankers consider this a “loophole” that creates unequal conditions. They warn of the risk of a massive withdrawal of deposits. Clients might prefer high-yield stablecoins on exchanges instead of holding dollars in financial institutions.<\/p>\n

According to the US Treasury, this could lead to an outflow of up to $6.6 trillion from the banking system. Associations have warned that this will undermine lending, lead to higher interest rates, and reduce the availability of loans for businesses and individuals.<\/p>\n

Crypto Industry’s Response<\/h2>\n

In a letter to senators, the Crypto Council for Innovation and Blockchain Association stated<\/a> that financial institutions are trying to protect themselves from competition at the expense of industry growth and consumer choice.<\/p>\n

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“This was no loophole, and you know it. Most lawmakers rejected your attempt to avoid competition,” wrote Coinbase’s chief legal officer Paul Grewal on X, commenting on the banks’ statement.<\/em><\/p>\n<\/blockquote>\n

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This was no loophole and you know it. 376 Democrats and Republicans in the House and Senate rejected your unrestrained effort to avoid competition. So did one President. It’s time to move on. https:\/\/t.co\/CGCGxDqKNa<\/a><\/p>\n

\u2014 paulgrewal.eth (@iampaulgrewal) August 13, 2025<\/a><\/p><\/blockquote>\n