Citi warns Stablecoin yields could drain bank deposits

A senior executive at Citi has raised a warning that could affect not only banks but anyone who relies on them for loans, savings, or everyday transactions. Put simply, the concern is that Stablecoin yields might tempt people to move huge sums of money out of banks.

The reasoning is easy to follow. People keep money in banks because it feels secure and provides some interest. If Stablecoin yields become higher than what banks can offer, large numbers of customers may choose to shift their deposits. Citi compared this scenario to the early 1980s in the United States, when savers left banks for money market funds that offered more attractive returns.

The scale of this potential shift is striking. Some estimates suggest that up to $6.6 trillion in deposits could leave the banking system if Stablecoin yields are widely available. Losing that much funding would leave banks scrambling for alternatives. They might need to borrow at higher costs or raise their own deposit rates to keep customers from leaving.

When banks face higher costs, the effect rarely stays with them. Higher borrowing costs could spread into the wider economy through more expensive mortgages, car loans, or business credit. What may begin as a financial adjustment could quickly touch households and companies across the board.

Policymakers are already paying attention. Current U.S. rules prevent stablecoin issuers from directly paying interest, yet crypto platforms have found ways to offer rewards linked to Stablecoin yields. Banks argue that this gives crypto companies an advantage, while advocates believe it simply creates healthy competition and more choice for consumers.

For ordinary savers, the issue may seem distant, yet the impact could be felt in daily life. If Stablecoin yields are safe and reliable, they could become a true rival to banks. That may benefit consumers with more options and better returns, but it could also strain banks’ ability to lend and provide liquidity to the economy.

Citi’s warning is less about rejecting innovation and more about recognizing how Stablecoin yields could reshape the financial system. The key question now is whether banks adapt by offering new services, whether regulators step in with stricter limits, or whether stablecoins grow into a parallel system that competes directly with traditional banking.

The future is not set, but the debate is here to stay. Stablecoin yields may end up as one of the most important forces in determining how money flows in the years ahead.