Citi Warns Stablecoin Yields Risk Repeating 1980s Bank Runs

Citi has issued a cautionary report highlighting the potential for stablecoin yields to drive a banking crisis reminiscent of the 1980s, when rising interest in money market funds led to massive capital outflows from traditional banks. According to Ronit Ghose, head of Citi’s Future of Finance, the growing appeal of higher-yielding stablecoins could trigger a similar shift in consumer behavior, with significant implications for bank liquidity and financial stability [1].

The report draws a parallel between the current rise of stablecoin deposits and the surge in money market fund growth between 1975 and 1982. During that period, such funds expanded from approximately $4 billion to $235 billion, largely due to the inability of traditional banks to compete with the higher returns offered by less-regulated alternatives. This shift weakened banks' deposit bases and contributed to a broader liquidity crisis [1].

Federal Reserve data supports this concern, showing that between 1981 and 1982, outflows from bank accounts exceeded new deposits by $32 billion. The Citi report warns that if stablecoins continue to offer attractive yields without the same regulatory constraints as banks, a similar outflow could emerge, particularly if depositors begin to prioritize digital assets over traditional savings [1].

Sean Viergutz of PwC has echoed these concerns, noting that banks could be forced to raise deposit rates or rely on more expensive wholesale funding, ultimately increasing lending costs for consumers and businesses. This dynamic could create a ripple effect, altering the broader credit landscape and potentially slowing economic activity [1].

Regulatory scrutiny is intensifying as the debate over stablecoin yields continues. The proposed GENIUS Act prohibits stablecoin issuers from directly paying interest but does not bar affiliated entities or exchanges from offering yields. Banking groups, including the Bank Policy Institute, have criticized this as a loophole that could allow stablecoins to indirectly siphon deposits from the banking system. In a recent letter, industry organizations warned that such activity could disrupt credit availability and projected potential outflows of up to $6.6 trillion from U.S. banks [1].

Crypto advocates, however, argue that imposing tighter restrictions would stifle innovation and create an uneven playing field. Two major industry groups have urged lawmakers to reject proposed regulatory changes, emphasizing that stablecoin yields represent a key competitive advantage and are central to the long-term utility of digital assets [1].

The U.S. government has generally supported the development of stablecoins, with Treasury Secretary Scott Bessent stating in March that the administration aims to use stablecoins to reinforce the dollar's role as the global reserve currency. This political stance underscores the strategic importance of stablecoins, not just as financial tools but as instruments of geopolitical influence [1].

The ongoing regulatory debate highlights a growing divide between traditional banking institutions and the digital asset sector. Banks view stablecoin yields as a threat to their deposit base, while crypto firms see them as part of an evolving financial ecosystem. The outcome of this discussion will likely shape the future of stablecoin adoption and determine how digital and traditional finance coexist in the U.S. [1].

Citi’s warning serves as a reminder that while stablecoins offer innovation and efficiency, their growth must be managed with care. The parallels to the 1980s illustrate the potential for systemic risk if policymakers fail to address the unique challenges posed by digital assets. A coordinated regulatory approach will be essential to ensure financial stability and prevent a repeat of past crises [1].

Source: [1] Citi Warns Stablecoin Yields Could Trigger Bank Outflows in 1980s Repeat (https://coinmarketcap.com/community/articles/68acadf99de84b22569c120a/)