SKN | JPMorgan Downplays Stablecoin Threat as Community Banks Warn of $6.6 Trillion Deposit Risk

Key Points

• Community banks warn that yield-like stablecoin incentives could put up to $6.6 trillion in deposits at risk.

• JPMorgan downplays systemic concerns, viewing stablecoins as complementary to traditional banking.

• Lawmakers face pressure to tighten stablecoin rules, with implications for crypto exchanges and payments firms.

U.S. stablecoin legislation is opening a fresh fault line inside the banking industry, with community lenders warning that digital dollars could drain trillions from traditional deposits — even as Wall Street giants like JPMorgan strike a notably calmer tone. The debate highlights a growing divide over whether stablecoins represent a systemic threat to bank lending or simply another layer of modern financial plumbing.

In a letter sent to the U.S. Senate on Jan. 5, more than 100 leaders from the American Bankers Association’s Community Bankers Council urged lawmakers to tighten provisions in recently passed stablecoin legislation. Their concern: loopholes that allow stablecoin issuers and affiliated platforms to offer yield-like incentives, potentially pulling massive amounts of savings out of local banks.

Community banks warn of deposit flight

The ABA letter argues that even though the GENIUS Act formally bans stablecoin issuers from paying interest directly, issuers can still route rewards through crypto exchanges or partners. That workaround, the bankers say, risks “swallowing the rule.”

Treasury estimates cited in the letter suggest as much as $6.6 trillion in bank deposits could be vulnerable if consumers increasingly park savings in stablecoins that appear to offer yield, rewards or other inducements. Community banks rely heavily on deposits to fund loans to households, farmers and small businesses, making them particularly sensitive to outflows.

“If billions are displaced from community bank lending, small businesses, students and home buyers in towns like ours will suffer,” the letter said, adding that stablecoin issuers cannot replicate banks’ role in credit creation and do not provide FDIC insurance.

JPMorgan sees stablecoins as complementary

Not all banks share that sense of urgency. A spokesperson for JPMorgan downplayed the idea that stablecoins pose a systemic threat to deposits or lending.

“There have always been multiple layers of money in circulation, including central bank money and commercial bank money,” the spokesperson said. “This won’t change. There will be different, but complementary, use cases for deposit tokens, stablecoins and other payment forms.”

JPMorgan’s stance reflects its own strategic positioning. Through its Kinexys unit and JPM Coin deposit token, the bank has embraced blockchain-based settlement as an efficiency tool rather than a competitive hazard. From that perspective, stablecoins are viewed as infrastructure that can coexist with traditional deposits, not replace them.

A familiar regulatory battle

The clash echoes earlier disputes between banks and fintech innovators. Trade groups have repeatedly lobbied Congress to restrict stablecoin issuance to regulated banks or ban interest-bearing tokens altogether. Similar warnings surfaced during debates over money market funds decades ago — instruments that ultimately became a core part of the financial system.

“Stablecoins are much more direct competition to banks than most cryptocurrencies,” said Joel Valenzuela, an independent analyst. “Banks are responding rationally to disruption, but that doesn’t mean the threat is as large as portrayed.”

Competition versus protection

Supporters of stablecoins argue the issue is less about consumer safety and more about protecting legacy business models. Michael Treacy, commercial director at payments firm OpenPayd, said competition from stablecoins could pressure banks to improve pricing and transparency, much as money market funds once did.

Critics of the banking lobby were more blunt. “If trillions flow out, it’s because banks failed to offer competitive digital products,” said Nima Beni, founder of crypto lender Bitlease, calling the ABA’s warning “fear-driven.”

As lawmakers consider whether to extend the GENIUS Act’s interest ban to affiliates and partners, the outcome could reshape how stablecoins are used across crypto exchanges and payments platforms. The debate underscores a central question for 2026: whether stablecoins evolve primarily as regulated complements to bank deposits — or as credible alternatives that force banks to adapt faster than they would like.