Stablecoin issuers and third-party platforms that pay interest to stablecoin holders are creating an “undesirable” parallel banking system, says JPMorgan financial chief Jeremy Barnum.
Barnum told investors during the bank’s fourth-quarter earnings call on Tuesday that its advocacy to ban all yield payments on stablecoins is “in the spirit of the GENIUS Act legislation,” which banned issuers from paying yield on their tokens.
“The creation of a parallel banking system that 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 like, dangerous and undesirable thing,” he said.
Bank lobbyists have pressured Congress to ban third parties, such as crypto exchanges, from being able to offer yields and rewards to users holding stablecoins on their platforms, arguing it could undermine the banking system and cause significant outflows.
JPMorgan wants “appropriate regulation”
Barnum acknowledged that JPMorgan had been “quite involved in the whole blockchain technology space for some time,” with the company working on tokenized money market funds and a stablecoin, or what it calls a “deposit token.”
“We always embrace competition,” he added. “So this is not about saying that we don’t want to compete, but it’s about avoiding the creation of a parallel ecosystem that has all the same economic properties and risks without appropriate regulation.”
Barnum said while blockchain technology “is cool and there’s interesting stuff there,” the bank’s thinking on stablecoin regulation was based on “how does this actually make the consumer experience better?”
Related: Coinbase could pull CLARITY Act support over stablecoin rewards ban
“In the cases where it does, we either need to get involved or improve our own service offering,” he added. “In the case where it doesn’t, sometimes it’s a little bit of a solution in search of a problem. So I think the question of the ‘risk’ to existing business models and banking system deposits needs to be looked at through that lens.”
Signs lawmakers may tighten stablecoin laws
Banking groups have pushed for a ban on all stablecoin payments to be added to crypto market structure legislation currently working its way through the Senate.
The Senate Banking Committee is set to debate a bill on Thursday. It released a draft of the bill on Monday that included a provision that only allowed companies to offer activity-based stablecoin rewards, compared to being able to offer rewards just for holding the token.
The Senate Agriculture Committee has delayed its markup on the bill until later this month as the committee’s Republicans said on Monday they had to garner more support from Democrats for the bill to advance.
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