When Cash Is No Longer Captive

U.S. digital asset regulation is stalled at the same moment the economics of deposits are being re-examined.

Congress has yet to resolve stablecoin and broader digital asset market-structure legislation, including the Clarity for Payment Stablecoins Act, even as U.S.-dollar-denominated stablecoins exceed approximately $130 billion in circulation and support trillions of dollars in annual transaction volume. At the same time, U.S. commercial banks continue to hold roughly $17 trillion in deposits, funding asset portfolios that, over the past two years, have generated materially higher yields than those passed through to depositors.

Against this backdrop, banks and banking trade associations have increasingly argued that crypto firms offering rewards or yield-like features should be regulated “like banks.”

That framing misses the central issue.

What is changing is not the existence of financial risk. What is changing is the behavior of cash itself. When cash can move digitally, earn visibly, and settle without relying on a traditional bank balance sheet, deposits stop behaving like inert funding and start behaving like capital again.

That shift, rather than ideology or innovation rhetoric, sits at the core of the current regulatory tension.

THE ECONOMICS OF DEPOSITS: WHY FUNDING MATTERS

Deposits are the foundation of the modern banking system. They are also its least visible economic lever.

For decades, deposits shared three defining characteristics. First, they were operationally inconvenient to move. Second, they were psychologically framed as “safe storage” rather than deployable capital. Third, they were priced well below prevailing market rates. Together, these features allowed banks to maintain low deposit betas even as asset yields fluctuated.

During the most recent rate-hiking cycle, this dynamic reasserted itself clearly. While policy rates exceeded 5 percent, average U.S. checking account yields remained well below 1 percent for extended periods. Meanwhile, banks earned significantly higher returns on assets funded by those same deposits. The spread between asset yields and deposit costs widened accordingly.

From a banking perspective, this outcome was neither surprising nor improper. It reflected a system optimized around deposit stability rather than depositor yield maximization. For most of the post-2008 period, this model faced little challenge because alternative places for cash to sit were either inconvenient, illiquid, or operationally complex.

That condition no longer holds.

THREE DEVELOPMENTS THAT CHANGED HOW CASH BEHAVES