The theory of $6 trillion in deposit outflows, the banking industry is panicking

Written by: Kolten

Translated by: AididiaoJP, Foresight Nws

The US “CLARITY Act” has sparked a discussion about the future of currency and banking development. A core element of the bill is: prohibiting digital asset service providers such as cryptocurrency exchanges from paying yields solely because customers hold “payment stablecoins.”

This ban on third-party platforms is actually a continuation of the 2025 “GENIUS Act,” which already prohibits stablecoin issuers from paying interest themselves. The banking industry supports these measures to protect their lucrative “interest margin” income.

In simple terms, the traditional banking model is: attract deposits at low interest, then lend out or invest in assets like government bonds at higher interest rates. The difference between the interest earned and paid is the bank’s net interest margin (or spread).

This model is quite profitable. For example, in 2024, JPMorgan Chase’s revenue reached $180.6 billion, with a net profit of $58.5 billion, primarily driven by net interest income of $92.6 billion.

Emerging fintech provides depositors with direct channels to earn higher yields, creating long-term competitive pressure that banks have long avoided. Therefore, some large traditional banks are attempting to use regulatory measures to protect their business models—this strategy has both rationale and historical precedent.

Banking Industry Segmentation

As of early 2026, the average annualized interest rate on US savings accounts was 0.47%, while major banks like JPMorgan Chase and Bank of America offered basic savings account rates of only 0.01%. Meanwhile, the risk-free 3-month US Treasury yield was about 3.6%. This means large banks can absorb deposits and buy Treasuries, easily earning a spread of over 3.5%.

JPMorgan Chase’s deposit size is approximately $2.4 trillion, which theoretically could generate over $85 billion in income solely from this spread. Although this is a simplified calculation, it illustrates the point.

Since the global financial crisis, the banking industry has gradually split into two categories:

Low-interest banks: Usually large traditional banks, leveraging extensive branch networks and brand recognition to attract deposits from less rate-sensitive customers.

High-interest banks: Such as Goldman Sachs’ Marcus, Ally Bank, etc., mostly online banks competing by offering deposit rates close to market levels.

Studies show that the deposit rate gap among the top 25 US banks has widened from 0.70% in 2006 to over 3.5% today.

The profit base of low-interest banks is precisely those depositors who are not actively seeking higher yields.

“6 Trillion Dollar Deposit Drain Theory”

Banking groups claim that allowing stablecoins to pay yields could lead to a “deposit drain” of up to $6.6 trillion, pulling credit resources from the economy. During a January 2026 meeting, a US bank CEO stated: “Deposits are not just a funding channel but also a source of credit. Outflows of deposits will weaken banks’ lending capacity, forcing them to rely more on costly wholesale funding.”

He believes small and medium-sized enterprises will be hit hardest, while US banks themselves are “less affected.” This argument equates stablecoin deposit-taking with capital outflows from the banking system, but this is not always the case.

When customers buy stablecoins, dollars are transferred into the issuer’s reserve accounts. For example, USDC reserves are managed by BlackRock and held in cash and short-term US Treasuries. These assets remain within the traditional financial system—total deposits may not decrease, just shift from individual accounts to issuer accounts.

Actual Concerns

What banks truly worry about is: deposits flowing from their low-interest accounts into higher-yield alternatives. For example, Coinbase’s USDC rewards or DeFi products like Aave offer yields far exceeding most banks. For customers, it’s a choice between putting money in big banks earning 0.01% or switching to stablecoins earning over 4%. The difference in yields is over 400 times.

This trend is changing depositor behavior: funds are moving from trading accounts to interest-bearing accounts, making depositors more sensitive to interest rates. Fintech analysts point out: “Banks’ real competitors are not stablecoins but other banks. Stablecoins only accelerate interbank competition, ultimately benefiting consumers.”

Research also confirms: when market interest rates rise, deposits tend to flow from low-interest banks to high-interest banks. Meanwhile, high-interest banks are expanding personal and business lending—fund flows driven by stablecoins could produce similar effects, channeling capital toward more competitive institutions.

History Repeats

The current debate over stablecoin yields resembles the controversy over the “Q Regulation” in the last century. This regulation set limits on bank deposit interest rates to prevent “excessive competition.” During the high inflation and high interest rate environment of the 1970s, market rates far exceeded the caps, harming depositors’ interests.

In 1971, the first money market fund was created, allowing depositors to earn market yields and support check payments. Similarly, protocols like Aave now enable users to earn yields without banks. Money market fund assets surged from $45 billion in 1979 to $180 billion two years later, and now exceed $8 trillion.

Banks and regulators initially resisted money market funds, but the interest rate caps were eventually abolished due to unfair treatment of depositors.

Rise of Stablecoins

The stablecoin market has also grown rapidly: from a total market cap of $4 billion in early 2020 to over $300 billion by 2026. The largest stablecoin, USDT, surpassed $186 billion in market cap in 2026. This reflects market demand for “freely tradable digital dollars that can earn yields.”

The competition over stablecoin yields is essentially a modern version of the money market fund debate. Banks opposing stablecoin yields are mainly traditional low-interest banks benefiting from the current system. Their goal is to protect their business model, but this new technology clearly offers more value to consumers.

History shows that technologies providing better solutions will eventually be adopted by the market. Regulators face a choice: to promote this transition or delay its progress.