Bank of America is sounding an alarm that cuts to the core of how modern finance is wired. If regulators allow interest-bearing stablecoins to compete head-on with traditional deposits, the bank’s chief executive says trillions of dollars could migrate out of the regulated banking system and into digital tokens. That kind of shift would not just dent bank profits, it could reshape credit, risk and the basic plumbing of the United States financial system.
The warning lands at a moment when U.S. banks are already juggling elevated unrealized losses and tighter funding conditions, even as they insist their balance sheets are sound. I see the stablecoin threat less as a sci‑fi scenario and more as an accelerant for pressures that are already visible in bond portfolios, funding markets and the race to keep depositors from drifting to higher-yield alternatives.
The $6 trillion stablecoin shock Bank of America fears
At the center of the debate is a stark number. Bank of America CEO Brian Moynihan has warned that if regulators open the door to fully interest-bearing stablecoins, as much as $6 trillion of deposits could leave the banking system for digital tokens that sit on public blockchains but are backed by traditional assets. In his view, the risk is not that crypto suddenly replaces banks, but that a large slice of what are now cheap, sticky deposits quietly migrates into instruments that look like cash to consumers yet sit outside the usual bank funding channels.
Moynihan has framed this as a classic funding squeeze: if households and companies can earn a competitive yield simply by holding a tokenized dollar, they have less reason to keep money in low-yield checking or savings accounts. He has said Bank of America itself will be “fine” if stablecoins become more mainstream, but he has also stressed that a mass shift into interest-bearing tokens would raise banks’ funding costs and, by extension, borrowing costs across the economy. The scale of the potential outflow, which he has put at up to Deposit Drain Risk, is what turns a technical regulatory question into a systemic one.
How interest-bearing stablecoins compete with banks
To understand why this alarms big lenders, it helps to look at how stablecoins are evolving. Early versions were mostly used by crypto traders and did not pay interest, functioning as a bridge between volatile tokens and dollars. The new frontier is interest-bearing stablecoins that pass through some or all of the yield earned on the assets backing them, such as short-term Treasuries or bank deposits. If those products are widely approved, they effectively become high-yield, on-chain money market funds that anyone can hold in a smartphone wallet.
From a bank’s perspective, that is direct competition for its cheapest funding. Traditional institutions rely on deposits that often pay less than market rates, especially in checking accounts, to fund loans to households and businesses. If customers can instead park cash in a token that pays a market-linked yield and can be moved instantly across apps like Coinbase Wallet or PayPal, banks may have to raise deposit rates or replace lost funding with more expensive wholesale borrowing. Moynihan has been explicit that this kind of stablecoin competition would push up banks’ cost of funds and ultimately filter through to higher loan rates, a point he has underscored in separate remarks about how Bank of America expects borrowing costs to respond if deposits migrate.
Why $6 trillion leaving banks would matter for credit
The headline figure of $6 trillion is not just a scare number, it maps roughly to a large chunk of the U.S. deposit base that currently anchors bank lending. If that volume of money moved into stablecoins, the immediate effect would be a scramble among banks to retain core customers, likely through higher rates on savings accounts, promotional CDs and even business deposits. That would compress net interest margins, the spread between what banks pay for funding and what they earn on loans and securities, which is a key driver of profitability.
More important for the broader economy, a sustained deposit drain of that magnitude would change how credit is created. Banks might respond by tightening lending standards, slowing growth in areas like small-business loans, auto finance and commercial real estate. They could also lean more heavily on securitization and capital markets funding, shifting risk into less transparent corners of the system. Moynihan’s warning that up to Trillion Moving from Banks into Stablecoins is therefore less about crypto enthusiasm and more about the knock-on effects for how easily the real economy can borrow.
Unrealized losses show banks’ existing interest-rate stress
The stablecoin debate is unfolding against a backdrop of lingering interest-rate damage on bank balance sheets. As rates rose, the market value of many banks’ bond portfolios fell, creating large unrealized losses that do not hit earnings unless securities are sold but still matter for capital and confidence. Recent analysis shows that the ratio of unrealized losses to total securities held by U.S. banks has improved but remains significant, declining to exactly 6.8% in the second quarter of 2025, a reminder that rate risk is still embedded in the system.
In dollar terms, the overhang is even clearer. Unrealized losses on investment securities for U.S. banks have been reported at $337.1 billion, a level described as historically elevated and still uncomfortably close to stress points seen in past crises. Those Unrealized losses matter because they limit how freely banks can sell securities to meet outflows without locking in hits to capital. If deposits start to move into stablecoins at scale, institutions already sitting on large paper losses would face a painful choice between crystallizing those losses or scrambling for alternative funding.
Regulators, politicians and the race to contain the risk
For regulators and lawmakers, the question is how to allow innovation in digital dollars without undermining the stability of the banking system. One option is to require that major stablecoin issuers operate as banks or bank-like entities, subject to capital, liquidity and supervision similar to what traditional lenders face. Another is to limit the ability of stablecoins to pay interest directly, preserving banks’ edge in deposit gathering while still letting tokens serve as a low-friction payment rail. Each path involves trade-offs between competition, consumer choice and systemic safety.
As I see it, the political backdrop will shape how aggressively those rules are drawn. With President Donald Trump back in the White House and Republicans and Democrats both eyeing fintech as a growth area, there is pressure not to smother stablecoin development outright. At the same time, the memory of regional bank failures tied to rapid deposit outflows is still fresh, and supervisors are acutely aware that a tokenized run can move faster than anything seen in the analog era. The fact that the ratio of unrealized losses has only eased to 6.8% underscores why they are listening closely when Bank of America CEO Brian Moynihan warns that stablecoins could drain trillions from U.S. banks.
More From The Daily Overview
Silas Redman writes about the structure of modern banking, financial regulations, and the rules that govern money movement. His work examines how institutions, policies, and compliance frameworks affect individuals and businesses alike. At The Daily Overview, Silas aims to help readers better understand the systems operating behind everyday financial decisions.
