Wall Street Banks Fear Stablecoin Threat To Core Deposits

The primary target is the rise of yield-bearing stablecoins, which now represent a direct structural threat to the traditional retail deposit model.

While investment banks see new plumbing for settlement and derivatives, retail-focused giants are sounding the alarm. The shift in tone reflects a realization that digital money is no longer a peripheral experiment but a competitor for the $17tn in deposits that underpin the American credit system.

Retail lenders warn of credit crunch

The sharpest opposition came from institutions with the largest retail footprints. Bank of America chief executive Brian Moynihan characterized interest-bearing stablecoins as a systemic drain on lending capacity. His argument is mechanical rather than ideological: if capital migrates to stablecoins, it leaves the banking system.

Moynihan cited internal analysis suggesting up to $6tn could eventually exit bank deposits for stablecoin structures that function like money market funds. Because these instruments typically hold short-term Treasuries or central bank reserves, they do not support the fractional reserve lending that fuels mortgages and small business loans. Moynihan warned that a mass migration would force banks to rely on expensive wholesale funding, inevitably driving up the cost of borrowing for the general public.

Strategy, the largest corporate holder of Bitcoin, has already demonstrated the appetite for "Digital Asset Treasury" (DAT) models, but banks fear the retail version will be even more disruptive. Strategy’s aggressive acquisition of Bitcoin, totaling $23bn ($23bn) in 2025 alone, has proven that corporate balance sheets are already shifting toward digital reserves.

Strategy’s success has not gone unnoticed. Strategy (previously known as Microstrategy) has become the bellwether for institutional Bitcoin adoption, with JPMorgan analysts led by Nikolaos Panigirtzoglou noting that such "DAT" companies accounted for over 50% of the record $130bn ($130bn) in crypto inflows during 2025.

Investment banks pivot to infrastructure

The perspective shifts as you move from retail branches to the trading floor. JPMorgan chief financial officer Jeremy Barnum acknowledged the risk to the traditional model but focused on the emergence of a "parallel banking system." He argued that interest-bearing stablecoins offer the same economic properties as deposits without the same regulatory oversight, creating an unlevel playing field.

In contrast, BNY Mellon and State Street are leaning into the transition. Following the launch of its Digital Asset Platform on 15 Jan, State Street is positioning itself as the infrastructure layer for tokenized money market funds and ETFs. With over $50tn under custody, these institutions see tokenization as a way to modernize settlement without losing their grip on the assets.

Goldman Sachs chief executive David Solomon maintained a calculated neutrality, noting that the firm has dedicated significant resources to deciding where to "invest and play" in the space. For these firms, the issue is not deposit flight but the potential for new revenue streams in onchain settlement and derivatives.

Lobbying intensifies over CLARITY Act

The banking industry's concerns have now spilled into the halls of Congress. Industry groups have launched a massive lobbying effort to influence the CLARITY Act, the centerpiece of digital asset legislation currently in the Senate. The American Bankers Association reported that thousands of bankers have contacted lawmakers to demand that yield-bearing stablecoins be prohibited or regulated strictly as deposits.

This legislative friction reached a breaking point on 14 Jan, when Coinbase chief executive Brian Armstrong withdrew his support for the CLARITY Act. Armstrong claimed the bill had become a "surveillance nightmare" and criticized provisions that would allow banks to suppress stablecoin competition by banning rewards. The markup session for the bill, originally scheduled for 15 Jan, has been delayed as a result.

The divide on Wall Street is now clear. Retail banks want to protect their low-cost funding, while custody and investment banks want to build the new rails. Whether these assets evolve inside the banking system or as a permanent competitor will be determined by the final text of the CLARITY Act.