JPMorgan Warns Stablecoin Yield Could Create Risky Parallel Banking System

JPMorgan Chase has raised concerns that stablecoin issuers and crypto platforms offering yield-bearing products may be building a parallel banking system that lacks the regulatory safeguards applied to traditional banks. Speaking during the bank’s fourth-quarter earnings call, JPMorgan Chief Financial Officer Jeremy Barnum warned that stablecoin yield products resemble interest-paying deposits but operate outside long-established prudential banking rules.

Barnum emphasized that these crypto-based yield offerings could pose systemic risks if left unregulated. He argued that creating financial products that function like bank deposits, yet avoid capital requirements, liquidity standards, and consumer protections, is “dangerous and undesirable.” According to him, banking regulations have evolved over centuries to protect consumers and the broader financial system, and bypassing them could introduce significant vulnerabilities.

The comments come as U.S. lawmakers intensify efforts to regulate the crypto sector. The Senate Banking Committee recently released a new draft of its crypto market structure bill, aiming to clarify oversight responsibilities between the Securities and Exchange Commission and the Commodity Futures Trading Commission. Notably, the draft includes provisions that would restrict how stablecoin issuers and crypto platforms can offer yield to customers. Under the proposal, firms would be prohibited from directly paying yield on stablecoin deposits unless the rewards are linked to activities such as staking or transaction-based services.

Barnum also noted that regulators must consider several unresolved questions, including how funds move between consumers and wholesale markets, where underlying securities are sourced, and the potential impact on system-wide bank deposits. These factors, he suggested, are critical to assessing the true risk of stablecoin yield products.

While JPMorgan already provides select crypto-related services, Barnum stressed that innovation alone is not enough. He questioned whether stablecoin yield genuinely improves the consumer experience and said that if it does, traditional banks may need to adapt by either participating in the space or enhancing their own offerings. His remarks underscore growing tension between crypto innovation and financial stability as stablecoins and digital asset yields gain traction worldwide.