What to know:

Over 100 community bank leaders are urging U.S. senators to address loopholes in stablecoin legislation, fearing it could divert trillions from traditional bank deposits.
The American Bankers Association warns that stablecoin issuers are offering yield-like incentives, potentially undermining local lending and affecting small businesses and households.
While community banks express concern, JPMorgan downplays the threat, viewing stablecoins as a complementary financial tool rather than a systemic risk.
More than 100 community bank leaders are urging U.S. senators to close what they describe as dangerous loopholes in stablecoin legislation, warning that trillions of dollars could migrate out of traditional bank deposits and undermine local lending across the country. But JPMorgan does not share the ABA's fears.

In a Jan. 5 letter sent to the Senate, members of the American Bankers Association's (ABA) Community Bankers Council said stablecoin issuers are increasingly finding ways to offer yield-like incentives, despite a statutory ban on interest payments from issuers directly, threatening to siphon savings away from their vaults that rely on deposits to fund loans to households and small businesses.

"Allowing inducements like interest payments, yield, or rewards could incentivize customers to park their savings not in a bank, but in stablecoins," the letter states. Treasury estimates cited by the ABA suggest as much as $6.6 trillion in bank deposits could be at risk if such practices continue.

The bankers argue that while the recently passed GENIUS Act brought long-needed oversight to stablecoins, it failed to fully prevent issuers from indirectly compensating users through crypto exchanges and affiliated partners, a workaround they say "swallows the rule."

"If billions are displaced from community bank lending, small businesses, farmers, students, and home buyers in towns like ours will suffer," the letter warned, adding that stablecoin-linked firms cannot replace banks' role in credit creation and do not offer FDIC insurance.

JPMorgan strikes a calmer tone

The alarm raised by community bankers is not universally shared across the banking sector. When asked whether stablecoins pose a systemic risk by drawing savings onto blockchains in search of higher yields, a JPMorgan spokesperson downplayed the threat.

"On background, there have always been multiple layers of money in circulation, including central bank-held money and institutional, commercial money," the spokesperson told CoinDesk. "This won't change, there will be different, but complementary, use cases for deposit tokens, stablecoins and all the other forms of payments we have today."