ABA economists warn yield-only view of deposits understates their bundled value
The American Bankers Association's Office of the Chief Economist makes the funding-stability case against competing for deposits on yield alone. The essay matters because it frames how the ABA will argue to policymakers as stablecoins, crypto platforms and AI agents lower switching costs and reduce deposits to a single comparable number: the interest rate.
- The essay argues a bank deposit is a bundled service contract combining interest with payments access, deposit insurance, fraud monitoring, dispute resolution and guaranteed par convertibility, not a pure yield product.
- It states stablecoin products do not provide the same combination of federal deposit insurance, supervision, customer protection and credit intermediation as an insured deposit, and that higher crypto yields may reflect higher risk.
- The authors warn that raising deposit rates to compete solely on yield could raise the cost of credit, reduce credit supply and, per empirical research cited, materially raise default probabilities during stress.
- It cautions that AI agents optimized for yield may treat deposits, stablecoins and other cash-like instruments as interchangeable despite differing protections and functions.
- The essay says deposits migrating to stablecoins would be invested primarily in short-dated Treasury bills, removing funds from direct support of bank lending.