Citi Executive Warns Stablecoin Interest Payments Could Drain Bank Deposits Like the 1980s Crisis
Citigroup’s Ronit Ghose warned that stablecoin curiosity funds might set off Eighties-style deposit flight from conventional banks.
In accordance with a Financial Times report, Ghose drew parallels to the late Seventies and early Eighties when cash market funds skyrocketed from $4 billion to $235 billion in seven years, draining deposits from banks whose deposit charges have been tightly regulated.
The warning comes as main U.S. banking teams foyer Congress to shut what they name a “loophole” in the GENIUS Act that enables crypto exchanges and affiliated companies to supply yields on stablecoins issued by third events similar to Circle and Tether.
Banking Trade Fears Mass Deposit Flight
Banking commerce teams, together with the American Bankers Affiliation and Financial institution Coverage Institute, argue that whereas the GENIUS Act prohibits stablecoin issuers from straight paying curiosity, exchanges can nonetheless provide rewards to holders via affiliate applications and advertising preparations.
US banks have warned {that a} hole within the GENIUS Act might enable stablecoin issuers to skirt restrictions on paying yield to holders.#Stablecoin #Cryptohttps://t.co/N7lSngpPof
— Cryptonews.com (@cryptonews) August 13, 2025
This regulatory hole might create an uneven enjoying subject the place stablecoin platforms appeal to depositors with aggressive yields whereas conventional banks face restrictions on deposit charges and regulatory overhead that restrict their capability to compete.
Sean Viergutz, banking and capital markets advisory chief at PwC, shared the same stance within the report, noting that “banks might face greater funding prices by relying extra on wholesale markets or elevating deposit charges, which might make credit score costlier for households and companies.”
The banking teams cited Treasury Division estimates suggesting yield-bearing stablecoins might lead to as much as $6.6 trillion in deposit outflows, which might change how banks fund loans and handle liquidity.
Throughout the Eighties disaster that Ghose referenced, withdrawals from financial institution accounts exceeded new deposits by $32 billion between 1981 and 1982 as customers chased greater returns in cash market funds.
Financial institution deposits function the first funding supply for loans to companies and customers, which means large-scale outflows might tighten credit score availability and push borrowing prices greater throughout the economic system.
Citi’s Contradictory Place on Stablecoins
Mockingly, whereas Ghose warns of systemic dangers from stablecoin yields, Citigroup is actively exploring stablecoin custody services and contemplating issuing its personal digital greenback token.
CEO Jane Fraser confirmed throughout its July earnings name that Citi is “wanting on the issuance of a Citi stablecoin” whereas growing tokenized deposit providers for company shoppers searching for 24/7 settlement capabilities.
The financial institution already presents blockchain-based greenback transfers between its New York, London, and Hong Kong places of work, whereas positioning itself to seize the infrastructure layer as stablecoins achieve mainstream adoption.
Nonetheless, crypto business teams pushed again in opposition to banking issues, with the Crypto Council for Innovation arguing that proscribing stablecoin yields would “tilt the enjoying subject in favour of legacy establishments” and stifle client alternative.
Coinbase Chief Authorized Officer Paul Grewal dismissed the banking foyer’s efforts, writing on X that lawmakers had already “rejected your unrestrained effort to keep away from competitors” in the course of the GENIUS Act’s passage.
Stablecoins on the Path to Reshaping World Cost Infrastructure
The battle of curiosity is unfolding as stablecoins are projected to capture $1 trillion in annual payment volume by 2028 and will comprise 10% of the U.S. cash provide, basically altering financial coverage dynamics.
Latest analysis from Keyrock and Bitso additionally means that stablecoins can facilitate funds as much as 13 occasions cheaper than conventional banks whereas settling in seconds.
Treasury Secretary Scott Bessent just lately tweeted his support for stablecoin adoption, arguing that “stablecoins will increase greenback entry for billions throughout the globe and result in a surge in demand for U.S. Treasuries” as backing belongings.
The GENIUS Act includes a “Libra clause” designed to stop Massive Tech and Wall Avenue from dominating the stablecoin market by requiring separate entities for issuance and prohibiting yield funds.
Nonetheless, platforms like Coinbase and PayPal proceed to supply stablecoin rewards, arguing the prohibition applies solely to issuers slightly than intermediaries or exchanges.
Trying ahead, the conflict between conventional banking and digital belongings is intensifying as programmable cash is disrupting previous fee techniques, whereas stablecoins’ borderless velocity and effectivity place them to develop into a multi-trillion-dollar normal for international settlement.
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