JPMorgan CFO publicly warns: Yield-bearing stablecoins threaten the banking system

JPMorgan CFO Jeremy Barnum warned on Tuesday that yield-bearing stablecoins could create a parallel banking system lacking regulation. The banking industry welcomes competition but strongly opposes financial innovations that bypass regulatory frameworks. Last year, US banking lobbying groups viewed yield-bearing stablecoins as a significant threat, and the latest draft of the “Digital Asset Market Transparency Act” under congressional review explicitly bans “paying interest solely because of holding stablecoins,” in response to banking industry concerns.

The Banking Sector’s Collective Panic and Lobbying Push

The US banking sector’s response to yield-bearing stablecoins has shifted from initial caution to full-scale defense. In May last year, Cointelegraph reported that US banking lobbying groups saw yield-bearing stablecoins as a major disruption to their business models, with an industry insider even describing the reaction as outright “panic.” This concern is not unfounded; the traditional banking system faces unprecedented structural challenges.

The threat of yield-bearing stablecoins lies in their offering a new value proposition. Users holding these tokens can enjoy stability pegged to the dollar and earn annual yields of 4% to 6%, far above the typical savings account interest rates offered by most US banks (usually below 1%). More critically, these yields come from the interest generated by stablecoin issuers investing user funds in US Treasuries and other short-term fixed-income instruments, a profit model long employed by traditional banks through interest rate spreads.

Stablecoins are rapidly developing as tools for payments, on-chain settlement, and dollar transactions, offering faster transaction speeds and lower costs. The emergence of yield-bearing stablecoins will only intensify this threat, especially as banks continue to offer relatively low interest rates to depositors. If large amounts of funds shift from traditional bank deposits to yield-bearing stablecoins, banks could face liquidity crises, and their lending activities could be severely impacted.

As a result, the American Bankers Association has launched a large-scale lobbying campaign to persuade Congress to legislate restrictions on yield-bearing stablecoins. Barnum’s comments during the earnings call are the latest indication of this lobbying effort. His response to Evercore analyst Glenn Schorr regarding stablecoins clearly reflects JPMorgan’s and the banking industry’s stance.

JPMorgan’s Regulatory Approach and Position

Barnum explicitly stated during the earnings call that JPMorgan’s position aligns with the intent of the “GENIUS Act,” which aims to establish safeguards for stablecoin issuance. However, he emphasized that the focus is not opposition to all stablecoins, but specifically those that mimic traditional banking activities yet lack appropriate regulation.

He warned: “Creating a parallel banking system that has all the features of banking—including looking like deposits and paying interest—but without the prudential safeguards developed over hundreds of years of banking regulation is clearly dangerous and undesirable.” This statement reveals the core concern of the banking industry—not the technological innovation itself, but regulatory arbitrage.

JPMorgan’s stance can be summarized in three levels. First, the bank welcomes innovation in blockchain technology and non-interest-bearing stablecoins that can improve payment efficiency and reduce cross-border transaction costs. Second, it firmly opposes financial products that bypass existing banking regulation, viewing them as systemic risks. Third, the bank advocates that any stablecoin with “deposit features” should be subject to the same prudential regulation as traditional banks, including capital adequacy requirements, liquidity coverage ratios, and deposit insurance mechanisms.

Three Major Risks of a Parallel Banking System

Regulatory Arbitrage Risk: Yield-bearing stablecoins bypass bank capital and liquidity regulations, potentially triggering bank runs during crises.

Systemic Risk Spread: Large flows of funds from regulated banks to unregulated stablecoin issuers could weaken financial system stability.

Consumer Protection Gaps: Stablecoin holders do not benefit from deposit insurance; in case of issuer bankruptcy, they face full losses.

Barnum added that while JPMorgan welcomes competition and innovation, it remains firmly opposed to the emergence of a parallel banking system operating outside established regulatory protections. This stance is both a call to regulators and a warning to the crypto industry.

Congressional Legislative Developments and Ban Details

(Source: U.S. Senate Banking Committee)

Stablecoin incentives have become a key point of debate in the US Congress’s review of the “Clarity for Digital Asset Markets Act” (CLARITY). This bill is a comprehensive proposal aimed at clarifying the regulatory jurisdiction over digital assets and defining how to regulate cryptocurrency-related activities. According to the revised draft released this week, digital asset service providers will be prohibited from “paying interest or yields solely because of holding stablecoins.”

This wording warrants careful interpretation. The phrase “solely because of holding” attempts to distinguish between passive income earned from holding stablecoins and rewards earned through active participation in DeFi protocols. The draft also leaves room for certain incentives related to broader ecosystem participation, including rewards for liquidity provision, governance activities, staking, and other network-related functions, rather than passive yields from holding dollar-pegged tokens.

This legislative design seeks to balance protecting banking interests with promoting crypto innovation. However, gray areas in enforcement could be significant. For example, if a user deposits stablecoins into a DeFi lending protocol and earns yields, is that considered “passive holding” or “liquidity provision”? Such ambiguities could lead to future regulatory disputes and enforcement challenges.

Barnum’s warnings echo congressional legislative trends, indicating that US financial regulation is tightening control over yield-bearing stablecoins. The ongoing tug-of-war between the banking industry and the crypto sector may ultimately reshape the entire digital asset regulatory landscape.