"The creation of a parallel banking system that sort of has all the features of banking, including something that looks a lot like a deposit that pays interest, without the associated prudential safeguards that have been developed over hundreds of years of bank regulation, is an obviously dangerous and undesirable thing."
"Allowing deposit-like products to operate outside the regulatory framework banks must follow introduces systemic risk, creating an ecosystem with similar economic functions and vulnerabilities, but without the protections designed to safeguard consumers and the broader financial system."
"Treasury estimated $6.6 trillion of bank deposits could be at risk if they don't close that loophole around interest on stablecoins, according to the American Bankers Association letter referenced during JPMorgan's earnings call."
Interest-bearing stablecoins increasingly resemble traditional bank deposits but operate without the regulatory protections that govern the banking system. JPMorgan's CFO Jeremy Barnum warns this creates a dangerous parallel banking system with banking features and deposit-like products lacking prudential safeguards developed over centuries of regulation. Congress is addressing this gap, with Treasury estimating $6.6 trillion in bank deposits could be at risk if regulatory loopholes around stablecoin interest remain unresolved. Barnum emphasizes the concern stems from systemic risk rather than resistance to innovation, as deposit-like products operating outside regulatory frameworks introduce vulnerabilities without consumer and financial system protections. The issue combines economic functions and risks similar to traditional banking but without corresponding safeguards.
Read at Fast Company
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