The American Bankers Association (ABA) released a statement attacking stablecoins amidst the ongoing debate in Congress concerning the regulation of the cryptocurrency class.
The Association, which represents traditional banks such as JPMorgan Chase (NYSE: $JPM) and Citigroup (NYSE: $C), raised an objection to a favorable report published by the White House’s Council of Economic Advisors.
The Bankers Association argues that the study ignores the consequences of allowing interest-bearing stablecoins, which could draw business away from mainstream financial institutions.
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The bank industry lobbyists claim that the proliferation of interest-offering stablecoins could accelerate deposit outflows, particularly at small and local banks.
This, in turn, would increase small banks’ funding costs and weaken their lending capacity, argues the association.
The American Bankers Association adds that the current stablecoin market, worth $300 billion U.S., is small compared to its future growth projections and scale.
According to the bankers, if the stablecoin market grows to between $1 trillion U.S. and $2 trillion U.S., the interest rate mechanism could accelerate the flow of funds from banks.
In such a scenario, it was argued that smaller banks would come under significant pressure and experience substantial contractions in credit supply.
The American Bankers Association also raised concerns about the risks of stablecoins evolving into a bank-like model in the future.
In conclusion, the Bankers Association argued that there are serious risks in letting stablecoins provide interest payments to investors.
The U.S. banking industry is fighting tooth and nail to prevent U.S. legislation from allowing interest payments from stablecoin issuers such as Circle Internet Group (NYSE: $CRCL).
finance.yahoo.com
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