Stablecoins Tighten the Squeeze Press on Traditional Banking, Moynihan Warns

The rise of stablecoins is creating unprecedented pressure on the traditional banking system, according to Bank of America CEO Brian Moynihan. During the bank’s Q4 2025 investor presentation, Moynihan painted a stark picture of how digital currency innovations could fundamentally reshape deposit flows and lending dynamics across the financial sector.

The $6 Trillion Squeeze: Deposits Moving Beyond Banks

Moynihan’s core concern centers on a potential mass migration of trillions in deposits from conventional banks to blockchain-based alternatives. While Bank of America itself may weather this transition, the broader banking ecosystem faces a critical squeeze press as customer funds shift toward stablecoins and yield-generating products tied to digital assets.

The threat isn’t merely theoretical. The American Bankers Association has warned that stablecoin issuers have found creative ways to circumvent interest-payment restrictions, offering yield-like incentives that effectively function as competing savings vehicles. With Bank of America holding $2 trillion in deposits at the end of 2025, even a fractional shift could dramatically alter the lending landscape.

If deposits migrate off bank balance sheets, lending capacity contracts. This isn’t just a balance-sheet issue—it’s a functional squeeze press on the entire credit system. When traditional banks lose deposit funding, they must rely increasingly on wholesale funding markets, which carry significantly higher costs. Those expenses inevitably get passed down to borrowers, particularly smaller and mid-sized businesses that depend on affordable credit.

Policy Under Pressure: GENIUS Act and Regulatory Gaps

The legislative landscape has become a battleground where the squeeze press intensifies. The GENIUS Act, signed into law last year, aimed to establish federal guardrails for stablecoin issuers but left critical loopholes unaddressed. Recent Senate efforts to close these gaps have stalled, particularly after Coinbase withdrew support for key provisions in crypto market structure bills.

The core issue: stablecoins are functioning increasingly like interest-bearing deposit substitutes, despite regulatory intentions to prevent exactly that outcome. Community financial institutions and the broader American Bankers Association have urgently called on lawmakers to tighten restrictions before the squeeze press becomes irreversible.

When Banking Giants Disagree: JPMorgan’s Contrarian View

Not all large lenders view stablecoins with equal alarm. JPMorgan has downplayed the systemic threat, arguing that multiple layers of money—central bank digital currencies, institutional money, and commercial instruments—have always coexisted. The bank contends that stablecoins will find complementary niches rather than drain traditional deposits entirely.

This divergence between Bank of America’s warnings and JPMorgan’s measured response reflects deeper divisions within the banking sector. While mega-banks may absorb stablecoin competition more easily, community lenders face far greater vulnerability to a deposit squeeze press.

The Systemic Risk Calculus

Moynihan emphasized that while Bank of America will adapt to customer preferences, the systemic consequences demand serious consideration. The squeeze press isn’t just about individual bank resilience—it’s about whether the traditional financial system can maintain its capacity to fund productive economic activity as trillions potentially migrate to blockchain alternatives.

The convergence of regulatory uncertainty, competitive pressure from stablecoins, and divided industry responses has created a complex squeeze press on the banking sector, with profound implications for credit availability and borrowing costs across the economy.