JPMorgan Warns Yield-Bearing Stablecoins Risk Creating Shadow Banking System

Source: Coinomedia Original Title: JPMorgan Warns Yield-Bearing Stablecoins Are Risky Original Link: https://coinomedia.com/jpmorgan-warns-yield-bearing-stablecoins-are-risky/ JPMorgan’s Chief Financial Officer, Jeremy Barnum, has raised fresh concerns over the rise of yield-bearing stablecoins. In a recent statement, Barnum warned that these crypto products could develop into a dangerous “parallel banking system” if left unchecked by regulators.

Yield-bearing stablecoins are digital tokens pegged to traditional currencies, like the U.S. dollar, that also offer interest or rewards for holding them. They’re becoming increasingly popular among crypto investors looking for alternatives to traditional savings accounts. However, Barnum suggests these crypto assets might resemble bank-like products — without the necessary protections of the banking system.

A Shadow Banking System in the Making?

Barnum’s warning echoes growing fears in financial circles that stablecoins offering returns could lead to systemic risk. Without regulatory safeguards such as capital requirements or deposit insurance, users may unknowingly expose themselves to higher financial risk.

“Once you start offering yields, you begin to look like a bank,” Barnum stated, implying that users may treat these coins as safe as traditional bank deposits — when they are not. The risk becomes more severe if these stablecoins grow in scale without oversight.

This “shadow banking system” concern isn’t new, but JPMorgan’s involvement adds weight. As one of the world’s largest financial institutions, its comments suggest regulatory agencies may soon be forced to act.

The Call for Clear Regulation

As stablecoins evolve, calls for regulation are getting louder. Experts argue that yield-bearing stablecoins need to follow the same rules as banks if they’re offering similar services. Barnum’s message is clear: without regulation, the financial system could be exposed to unforeseen vulnerabilities.

While stablecoins can provide innovation and efficiency, the push for higher returns may invite the same dangers that led to past financial crises. Striking a balance between innovation and stability is now a key challenge for regulators worldwide.