JPMorgan compares yield-bearing stablecoins to the shadow banking system

JPMorgan executives reinforced their opposition to yield-bearing stablecoins, stating that this type of digital asset should be subject to stricter rules within the future regulatory framework for cryptocurrencies in the United States. The position was presented in a document published by Umar Farooq, the bank's global co-head of payments, and Peter Muriungi, CEO of Digital Assets and Blockchain Solutions.

According to the executives, the United States needs to establish a regulatory framework capable of encouraging innovation without compromising financial stability. They argue that oversight should keep pace with market developments and eliminate loopholes that could create risks for the financial system.

"The correct definition of the framework will allow responsible innovation, eliminating loopholes, aligning oversight with economic reality, and preserving the protections that underpin financial stability," Farooq and Muriungi wrote.

The stance comes as Congress discusses bills that seek to define the role of regulatory agencies over the cryptocurrency market, establish rules for companies in the sector, and expand investor protection. The topic has also gained importance with the growth of asset tokenization by traditional financial institutions.

In the view of JPMorgan executives, technologies such as tokenization and programmable money represent important advances for international payments and financial settlements carried out on a continuous basis.

"These technologies have the potential to modernize financial infrastructure in significant ways, especially as trade and investment become more global and operate 24 hours a day," they wrote.

Despite this recognition, Farooq and Muriungi say that yield-bearing stablecoins represent a different challenge from so-called payment stablecoins. For banks, offering remuneration to holders of these assets could encourage the migration of funds currently held in bank accounts, reducing deposits and affecting the supply of credit.

"When consumers receive 'rewards' or 'cashback' simply for maintaining balances, many rightly assume that the product offers the familiar safeguards," Farooq and Muriungi wrote. "Otherwise, the result is not only consumer confusion; it is a greater risk of capital flight and the potential for destabilizing movements of funds in periods of crisis."

The executives add that yield-bearing stablecoins could end up resembling the so-called shadow banking system if they are not subject to the same level of oversight applied to traditional deposits. In their view, products with characteristics similar to interest-bearing accounts should follow equivalent standards of prudential supervision.

In addition to concerns about financial stability, the document also highlights the need to preserve effective mechanisms to combat money laundering and the financing of illegal activities as the cryptocurrency market becomes increasingly integrated into the traditional financial system.

"Equally important is ensuring that digital asset markets do not become blind spots for illicit activities. As these technologies become faster and more integrated into the traditional financial system, robust anti-money laundering and law enforcement tools are not optional — they are fundamental," Farooq and Muriungi said.

The debate is taking place in parallel with discussions about the Clarity Act, a bill that aims to create a broader regulatory framework for the cryptocurrency market in the United States. Last week, four U.S. law enforcement organizations sent a letter to the Department of Justice and the White House stating that the proposal still contains gaps that could hinder investigations involving cryptocurrency-related financial crimes. Meanwhile, the Senate continues to review the text, which remains among the priorities of the July legislative agenda.