Citi Executive Warns Stablecoin Yields Could Drain Bank Deposits (cointelegraph.com) 79
An anonymous reader quotes a report from CoinTelegraph: Paying interest on stablecoin deposits could spark a wave of bank outflows similar to the money market fund boom of the 1980s, Citi's Future of Finance head Ronit Ghose warned in a report published Monday. According to the Financial Times, Ghose compared the potential outflows caused by paying interest on stablecoins to the rise of money market funds in the late 1970s and early 1980s. Those funds ballooned from about $4 billion in 1975 to $235 billion in 1982, outpacing banks whose deposit rates were tightly regulated, Federal Reserve data showed. Withdrawals from bank accounts exceeded new deposits by $32 billion between 1981 and 1982.
Sean Viergutz, banking and capital markets advisory leader at consultancy PwC, similarly suggested that a shift from consumers to higher-yielding stablecoins could spell trouble for the banking sector. "Banks may face higher funding costs by relying more on wholesale markets or raising deposit rates, which could make credit more expensive for households and businesses," he said. The GENIUS Act does not allow stablecoin issuers to offer interest to holders, but it does not extend the ban to crypto exchanges or affiliated businesses. The regulatory setup led to a significant reaction by the banking sector.
Several US banking groups led by the Bank Policy Institute have urged local regulators to close what they say is a loophole that may indirectly allow stablecoin issuers to pay interest or yields on stablecoins. In a recent letter, the organization argued that the so-called loophole may disrupt the flow of credit to American businesses and families, potentially triggering $6.6 trillion in deposit outflows from the traditional banking system.
Sean Viergutz, banking and capital markets advisory leader at consultancy PwC, similarly suggested that a shift from consumers to higher-yielding stablecoins could spell trouble for the banking sector. "Banks may face higher funding costs by relying more on wholesale markets or raising deposit rates, which could make credit more expensive for households and businesses," he said. The GENIUS Act does not allow stablecoin issuers to offer interest to holders, but it does not extend the ban to crypto exchanges or affiliated businesses. The regulatory setup led to a significant reaction by the banking sector.
Several US banking groups led by the Bank Policy Institute have urged local regulators to close what they say is a loophole that may indirectly allow stablecoin issuers to pay interest or yields on stablecoins. In a recent letter, the organization argued that the so-called loophole may disrupt the flow of credit to American businesses and families, potentially triggering $6.6 trillion in deposit outflows from the traditional banking system.
No worries (Score:5, Insightful)
If the banks fail we'll give them a handout. Privatize the profits and socialize the losses.
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Banks are financial infrastructure, but too many want to treat them like a typical private company. They are not comparable: if say Target bellies up, nothing notable happens, but if a top bank sinks, it can easily set off a chain reaction of financial panic.
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That's what gold used to be. The defacto tender for all transactions. Then the banks stepped in and issued currency backed by gold. Moving the metal to Fort Knox. And soon therefter, golds status as backing was rescinded, making the currency prima fascia tender. The banks are just afraid that their currency will suffer the same fate. Stuffed in a vault as backing for the tender used for actual commerce.
Re: No worries (Score:2)
Russia has a reserve of about 64M ounces of gold. At the gold standard rate of $20.67/ounce, that would make their reserves worth about $1.3B.
Re: No worries (Score:2)
Re: No worries (Score:2)
But the US has the most gold. So how would Russia buy up the US?
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then Russia could buy us
We're not for sale.
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But the administration clearly is.
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Banks are financial infrastructure, but too many want to treat them like a typical private company. They are not comparable: if say Target bellies up, nothing notable happens, but if a top bank sinks, it can easily set off a chain reaction of financial panic.
Banks have made themselves infrastructure, but they are privately held businesses and individuals profit greatly off of them. Like all "too big to fail" businesses, they've been allowed to put themselves in a parasitic relationship with our civilization and done it in such a way that if they fuck up royally enough, the civilization has to step in to save them. If they do great things, they get to keep their earnings. Too much of society is beholden to large for-profit industry, including banks. It's almost
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Can we at least agree they are quasi-utilities, and thus should be regulated like a quasi-utility?
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Can we at least agree they are quasi-utilities, and thus should be regulated like a quasi-utility?
WE can agree on that. But it doesn't have any actual effect on the reality we're living in.
Re: No worries (Score:2)
Any institution that becomes too big to fail should be immediately dismantled.
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Be specific about bailouts
Auto bailouts were loans that were paid back (with interest)
Bank bailouts were with some conditions they had to loan out money
There was a lot so be specific, there probably were some questionable ones but be specific.
Theres nothing wrong with the public being invested into the largest American enterprises but the way Trump is doing it is corrupt and transparently in the name of graft. Also we lose long term if Intel doesn't use that money for fans and manufacturing now.
What if we don't? (Score:2)
Sure that's probably not going to work but those people are crazy and stupid. So they might try anyway.
I keep saying this but folks need to understand that every single system designed to protect you has failed. All of them.
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In the event of large bank collapses, it's hard to see stablecoins being all that useful. Although theoretically stablecoins are backed by stable and highly liquid assets, it's not like they have a stack of dollar bills (one for every coin they issue) sitting in a vault. Instead, their stablecoins are a stack of IOUs - chits for the
Re: What if we don't? (Score:2)
Stablecoins would remain liquid, even if your bank does not. You'd be able to continue to access all your coins while your bank gets tied up in a run and limits withdrawals.
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That does not mean people will accept them as being worth $1. See for example Terra, currently worth about $0.0134.
Re: What if we don't? (Score:2)
You can't identify which coin is which. It's not like one particular dollar bill is associated to one bank. The stable coin is backed by treasuries, not FDIC. FDIC is limited and can impose capital controls while they work everything out. Stablecoins are more like the cash you hold in your wallet. Your bank has no control over them.
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What if Trump and heritage foundation goons propping him up let them collapse so they can use stable coins to create a new banking system for themselves and only themselves?
Real question: What would be the point of that? Even hoarded gold would have no value if nobody but a select group of people could do anything with it.
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Join the ponzi stampede, everyone (Score:1)
The bank boys are waiting for you there.
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I assume that behind every financial scheme there are the bankers who made a killing during every "financial crisis" who know how to go around all those pesky "regulations" that "block innovation".
Re: Join the ponzi stampede, everyone (Score:2)
You are apparently not aware that banks create dollars out of thin air all the time. That's the crux of what is called fractional reserve banking. Banks create money on demand as people take out loans.
Also, the mechanism you describe for stablecoins is a bit off. You deposit a dollar into the bank which they then use to buy US bonds/treasuries. The fed deposits the dollar into the bank's reserve account. As long as that stablecoin is outstanding the bank must hold that treasury, and so the fed must hold the
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You deposit a dollar in a bank. The bank lends out the dollar, and the borrower spends it on something.
The recipient of the spending has a dollar. You feel that you have a dollar because it is deposited in a bank, and you can transfer it to someone else's bank account in the same way that you could spend a dollar, and people will accept that as a 1:1 substitute for a dollar.
Re: Join the ponzi stampede, everyone (Score:2)
Yeah, that's essentially how it works, with one important correction: capital reserves.
There's a reserve rate that banks must actually keep on hand. For most banks, I think it's around 5%, but it varies by type of bank.
Let's say it's 10%, for easy numbers.
If you deposit $1, your bank can now write a loan for $10, because your $1 is 10% of the loan value. Those $9 extra are created out of thin air. And the recipient of that loan can deposit the full $10 into their own bank account.
The theory here is that the
Re: Join the ponzi stampede, everyone (Score:2)
One more note, when a bank writes a loan, the loan is an asset to them, and you savings account is a liability. So if a bank creates a loan of $10 from a deposit of $1, the bank balance sheet is $9. We think of cash as an asset, but for a bank they are holding cash for other people, so to them it's generally a liability: something they owe to someone else.
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If you deposit $1, the bank can lend out $0.90.
The $9 comes from that $0.90 being deposited back in the bank and lent out again multiple times - $0.81, $0.729, etc, keep going and they all add up to $9.
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It is offset against transfers going in the other direction, and failing that, by adjusting the balances on their accounts with the Federal Reserve.
If the Federal Reserve balance goes below the permitted level, that's called a run on the bank and that's where FDIC gets involved.
And when some of the "stable" coin co's (Score:2)
And sure the stable coins will be backed by treasuries or some other thing, but the problem is that the stable co's directors are using the money for hookers and blow. Not for the treasuries you thought they were buying wi
Re:And when some of the "stable" coin co's (Score:5, Interesting)
go bellyup I can't wait to hear the screaming about bail them out. Part of the deal with putting money in a bank is it is FDIC insured.
The government could create FDIC insurance for a stablecoin. The whole point of a stablecoin is it's supposed to be backed by a specific hard asset or by a mix of hard assets. JMO - The government should be working on setting regulatory standards Stablecoins have to meet Including.
1. Registration similar to stock and bond issuers
2. Declared reserves.
3. Proof of stable reserves.
4. Proof of regulator audits of quarterly and annual audits those reserves by independent unrelated parties who have appropriate licensing and certification. Which include at the minimum a physical inventory of any hard reserves, a forensic book examination, confirmation of all balance sheets and statements for the preceding 6 months, and a complete review of all assets and liabilities.
5. Requirements that a subsequent independent audit cannot be performed by the same accounting firm, person, group, team, or contractor during the same year as a previous independent audit.
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I
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Why? Stablecoins I believe plan on using treasuries to back them. You can buy Treasuries easily. You can sell treasuries easily. So why would you want to put a middleman in there who is going to take a cut
Because your treasuries require you have a centralized account and can only be sold for USD.
If that entity who holds your centralized account does not contemplate a transaction, then it is not possible.
The value in your Stablecoins is tokenized and can be traded directly in exchange for goods and services
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How is this not just an unneeded reinvention of the wheel? We already have banks, we already have currency, we already have international trade and currency exchanges, we already have electronic transfers... why do we need this mess?
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We already have banks, we already have currency,
Because banks suck and do NOT provide a good solution for all use cases where you want to hold and exchange value online. Consider stablecoins and crypto as a type of competitor to some banking services for some uses.
Banks take 24 hours to settle your transfer and charge you a 5% fee for the privilege. Instead of the minutes or at most an hour you would possibly want your transfers to complete in.
Banks will create waiting periods and holding periods to a
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Stablecoins should be regulated in the same way that the likes of Paypal is regulated.
In Europe that is as an electronic money issuer, and when the European Parliament was drafting those regulations about 25 years ago, they had in mind something more like stablecoins than what we actually got with PayPal, Wise, and similar. In the USA, it is as a money transfer agent.
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Stablecoins should be regulated in the same way that the likes of Paypal is regulated.
I don't know that that makes any sense whatsoever.
Paypal is an entirely different kind of thing. You go to Paypal because you want to send a friend $25. Paypal provides processing which gets the payment transferred from point A to point B.
With Stablecoins: the stablecoin has nothing to do directly with that process. Stablecoins don't deploy payment processing infrastructure. Stablecoin operators create the define t
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OK, this is the difference between how Paypal is regulated in the US (as you describe) and how it is regulated in Europe.
The actual effect of the regulation in terms of what it requires Paypal to do is essentially the same (at a high level, obviously the specifics are different) in both places, but the starting point for the respective governments in how they arrived that this point is very different.
In Europe, the idea was that in the future people might get issued with some sort of hardware wallet which s
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Imagine if currency were backed by hookers and blow.
That would be a pretty exciting world to live in.
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banks have deposits to have outflows? (Score:2, Interesting)
I have not kept more than 2 months worth of cash in my bank for 15 years. I find it hard to believe many people keep significant amounts of cash in banks anymore. Are there even balances that could outflow to stablecoins? Who keeps piles of cash in a bank while you could hold stocks, mutual funds, bitcoin etc. Stablecoins aren't a threat at all, unless a new kind of bank appears that replaces trad banks in utility by using a stable coin.
Scale (Score:2)
You have to account for scale with these big banks. If a million depositors have just $10,000 in their account, a reasonable cushion for emergencies, that's $10 billion dollars. Citi has 200 million accounts globally.
Compounding their problems is that banks have been discouraging accounts with high dollar amounts. They don't want to be required to cover the potential large outflow of cash if a billionaire decides they want to pay cash to buy some company, and takes out $20 million all at once. This pushes
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But what I can't wrap my head around is why anyone would want to do that. You don't have to buy stablecoins to spend dollars, you can just spend dollars. That is true across the globe, in almost every other nation. Why create a new currency exchange system that people would hav
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I have not kept more than 2 months worth of cash in my bank for 15 years. I find it hard to believe many people keep significant amounts of cash in banks anymore. Are there even balances that could outflow to stablecoins? Who keeps piles of cash in a bank while you could hold stocks, mutual funds, bitcoin etc. Stablecoins aren't a threat at all, unless a new kind of bank appears that replaces trad banks in utility by using a stable coin.
That's nice, but if you think you're typical you're wrong. Most people can't seem to keep that much cash in the bank. The median transaction account balance [bankrate.com] (savings, checking, and money market accounts combined) is $8,000. The average is much, much higher, which means that the values below median are pretty small, and about 59% of Americans couldn’t cover a $1,000 emergency expense from their savings in 2025. Someone who can't come up with a kilobuck for an emergency isn't going to be playing the sto
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exploring the anecdote, I have 5 kids, so yeah -- no European vacations here!! Only saving so they can have some access to opportunity I didn't have.
Re: banks have deposits to have outflows? (Score:2)
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I have not kept more than 2 months worth of cash in my bank for 15 years. I find it hard to believe many people keep significant amounts of cash in banks anymore. Are there even balances that could outflow to stablecoins? Who keeps piles of cash in a bank while you could hold stocks, mutual funds, bitcoin etc..
Asian people do.
Ethnic Chinese people maybe do it more than any other group, although I suspect Japanese people are likely to do this as well. There is societal pressure for Chinese people to save money in banks for various reasons, including getting married. It's not unusual at all for young men to basically be living on instant ramen noodles and living in the cheapest apartments they can find so they can squirrel away every dollar they make for a future wedding where they will not only be expect
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By and large, neither do I. But there are plenty of small-to-medium sized businesses that keep several months' to a year's worth of operating expenses, in cash, in bank accounts. This is to ensure that they can always make payroll, office lease payments, etc. It's not the only way to structure such things, but it does get used.
It became quite an issue when Silicon Valley Bank collapsed a few years back. Some businesses lost hu
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With Silicon Valley Bank, their customers were mostly companies with VC funding, and the funds were in the bank to cover spending before the next funding round.
Quit building branch offices (Score:2)
Banks should quit building branches. They don't need the real estate anymore. Hell, Chase has gone so far as to do away with safety deposit boxes entirely so there literally is almost no reason to go to a branch unless you need cash and these days, I never use cash.
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How does it come about? (Score:2)
if the product offering is risky for your bank... (Score:2)
if the product offering is risky for your bank... why is it being offered? Traditionally, banks are risk averse.
Not sure i understand this... people deposit money... you offer stable coin with an interest pay out you can't afford.. you are afraid that the ponzi scheme you want to offer is not supported with enough deposits down the line to offset the payouts...
did i miss something? (i suspect lots)
we've been down this road of short term risky greedy profits... and massive push to do things as quickly and
Bank interest rates are too low (Score:2)
Maybe instead of investigating stablecoin yield offers, we should be looking into why bank deposit and CD interest has been so low over the last ~5 years?
And stablecoin, like *any* cryptocurrency (Score:2)
is a scam.
So, if I understand this, it would be like paying interest with stocks instead of real money. Then, on a withdrawal, or loan, the banks would have to pony up the current value of the stocks...
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Re: And stablecoin, like *any* cryptocurrency (Score:2)
The primary reason to use them is to interact with more useful cryptocurrencies.
There's a security mismatch between blockchain and traditional money transfers. Blockchain transactions are irreversible. Traditional money transfers are not. This means if you trade your Bitcoin for someone else's (non-physical) dollars, you open yourself up to counterparty risk. They can take your Bitcoin, then claim the money transfer was fraud and have the bank do a claw back.
This is not an issue for trading different crypto
What? (Score:2)
What the hell are these things? What are they for? Why should they exist?
Re: What? (Score:2)
"Doesn't that mean it can't be lent/borrowed?"
Not necessarily. You can still use things like Islamic banking where you pay a flat fee for the loan.
If you don't know who the sucker is in the room (Score:2)
Compete or die (Score:2)
So, Citi is saying they can't compete. Sounds like a dead business model. Maybe come up with a better one.
How wouldn't these be investment funds? (Score:2)
To not regulate exchanges offering interest on stable coin demand deposits as a money market fund would be silly.
They won't be gambling on crypto for the interest, but in good old fiat currency debt and shares.
there is no spoon (Score:2)
so if the stablecoins are backed by dollars then just convert them to dollars and deposit the dollars, earn interest then convert the dollars back to stablecoin upon withdrawal - easy !
Unless they are not really backed by real dollars
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The stable coins are regulated to be backed by real dollars, but your entitlement to stable coins at exchanges are not stable coins.
Kids might be more comfortable playing with crypto than parking it in a fund on fidelity, but I agree, there is no real point. The only way the exchanges will be able to offer higher interest will be by taking higher risk.