Citigroup’s Ronit Ghose warned that stablecoin interest payments could trigger 1980s-style deposit flight from traditional banks.
According to a Financial Times report, Ghose drew parallels to the late 1970s and early 1980s when money market funds skyrocketed from $4 billion to $235 billion in seven years, draining deposits from banks whose deposit rates were tightly regulated.
The warning comes as major U.S. banking groups lobby Congress to close what they call a “loophole” in the GENIUS Act that allows crypto exchanges and affiliated businesses to offer yields on stablecoins issued by third parties such as Circle and Tether.
Banking Industry Fears Mass Deposit Flight
Banking trade groups, including the American Bankers Association and Bank Policy Institute, argue that while the GENIUS Act prohibits stablecoin issuers from directly paying interest, exchanges can still offer rewards to holders through affiliate programs and marketing arrangements.
This regulatory gap could create an uneven playing field where stablecoin platforms attract depositors with competitive yields while traditional banks face restrictions on deposit rates and regulatory overhead that limit their ability to compete.
Sean Viergutz, banking and capital markets advisory leader at PwC, shared a similar stance in the report, noting that “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.”
The banking groups cited Treasury Department estimates suggesting yield-bearing stablecoins could result in up to $6.6 trillion in deposit outflows, which could change how banks fund loans and manage liquidity.
During the 1980s crisis that Ghose referenced, withdrawals from bank accounts exceeded new deposits by $32 billion between 1981 and 1982 as consumers chased higher returns in money market funds.
Bank deposits serve as the primary funding source for loans to businesses and consumers, meaning large-scale outflows could tighten credit availability and push borrowing costs higher across the economy.
Citi’s Contradictory Position on Stablecoins
Ironically, while Ghose warns of systemic risks from stablecoin yields, Citigroup is actively exploring stablecoin custody services and considering issuing its own digital dollar token.
CEO Jane Fraser confirmed during its July earnings call that Citi is “looking at the issuance of a Citi stablecoin” while developing tokenized deposit services for corporate clients seeking 24/7 settlement capabilities.
The bank already offers blockchain-based dollar transfers between its New York, London, and Hong Kong offices, while positioning itself to capture the infrastructure layer as stablecoins gain mainstream adoption.
However, crypto industry groups pushed back against banking concerns, with the Crypto Council for Innovation arguing that restricting stablecoin yields would “tilt the playing field in favour of legacy institutions” and stifle consumer choice.
Coinbase Chief Legal Officer Paul Grewal dismissed the banking lobby’s efforts, writing on X that lawmakers had already “rejected your unrestrained effort to avoid competition” during the GENIUS Act’s passage.
Stablecoins on the Path to Reshaping Global Payment Infrastructure
The conflict of interest is unfolding as stablecoins are projected to capture $1 trillion in annual payment volume by 2028 and could comprise 10% of the U.S. money supply, fundamentally altering monetary policy dynamics.
Recent research from Keyrock and Bitso also suggests that stablecoins can facilitate payments up to 13 times cheaper than traditional banks while settling in seconds.
Treasury Secretary Scott Bessent recently tweeted his support for stablecoin adoption, arguing that “stablecoins will expand dollar access for billions across the globe and lead to a surge in demand for U.S. Treasuries” as backing assets.
The GENIUS Act includes a “Libra clause” designed to prevent Big Tech and Wall Street from dominating the stablecoin market by requiring separate entities for issuance and prohibiting yield payments.
However, platforms like Coinbase and PayPal continue to offer stablecoin rewards, arguing the prohibition applies only to issuers rather than intermediaries or exchanges.
Looking forward, the clash between traditional banking and digital assets is intensifying as programmable money is disrupting old payment systems, while stablecoins’ borderless speed and efficiency position them to become a multi-trillion-dollar standard for global settlement.
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