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Treasury warns stablecoin loophole could threaten $6.6 trillion in bank deposits

Federal Reserve warns $3 trillion could flee banks into stablecoins·July 19, 2025

The Treasury Borrowing Advisory Committee warned in its Apr. 30, 2025 presentation that approximately $6.6 trillion in U.S. commercial-bank transactional deposits could be "at risk" of migrating to stablecoins if issuers or their affiliates offer yield. The warning came as Congress debated the GENIUS Act, which President Trump signed into law on Jul. 18, 2025.

Federal Reserve Governor Stephen Miran projected stablecoin adoption could reach $1 trillion to $3 trillion by decade's end. The American Bankers Association urged lawmakers to close what they call an "interest loophole"—the law bans stablecoin issuers from paying interest directly, but affiliated exchanges can still offer yield-like rewards. Banks warn this workaround could trigger deposit flight that reduces their lending capacity. The Bank Policy Institute estimates that every $100 billion in deposit flight reduces lending by $70 billion.

Key facts

The GENIUS Act, S.1582, was sponsored by Sen. Bill Hagerty. The Senate passed the bill on June 17, 2025, and the House passed it on July 17, 2025. The president signed it into law on July 18, 2025.

The law creates a federally qualified nonbank stablecoin issuer category. Issuers must back each coin with one-to-one reserves held in high-quality liquid assets. Issuers with more than $100 million in coins must disclose reserves and submit annual audits. The statute sets strict standards for what assets count as reserves.

The law lets federally qualified issuers access Federal Reserve services under a dual federal-state supervision model. That gives the Fed a formal oversight role alongside state regulators. Nonbank issuers could get some operational supports similar to banks while remaining outside full banking charters.

Treasury modeling estimated stablecoins could pull as much as $6.6 trillion from bank deposits in stress scenarios. Industry groups and the Bank Policy Institute presented similar scenarios showing large uninsured deposit outflows. Banks, regulators, and the Fed warned this could shrink traditional liquidity and change monetary-policy transmission. Smaller banks would likely face the biggest funding pressure and tighter lending.