Stablecoins May Not Drain Deposits, Could Raise Loan Costs

When a customer uses funds from a bank account to buy newly issued stablecoins, the issuer typically deposits those dollars into its own bank account and issues a token that circulates on a blockchain. The deposit remains in the banking system, but ownership shifts from an individual customer to an institutional issuer. Banks treat institutional accounts differently from many small retail accounts because a single large holder can move funds more quickly.

Regulatory measures show how those ownership changes affect banks. Under the Basel Liquidity Coverage Ratio, banks compare assets they can quickly convert to cash with estimated net cash outflows over 30 days. For example, a bank with $120 million of high‑quality liquid assets and $100 million of estimated outflows has a 120% ratio. If estimated outflows rise to $110 million while liquid assets stay the same, the ratio falls to about 109% even without any actual withdrawals. A lower ratio can force a bank to increase liquid holdings or secure longer‑term funding.

How issuers back stablecoins changes the distribution of deposits. Some issuers keep reserves as bank deposits; others buy short‑term Treasury bills. If an issuer buys a Treasury from a nonbank investor, the seller’s bank balance increases and the issuer’s bank balance falls. If the issuer buys a Treasury owned by a bank, the seller gives up a liquid asset and a deposit may be extinguished, reducing that bank’s available securities for cash needs. Buying newly issued government debt moves funds through the Treasury’s account and affects deposit flows differently.

National deposit totals can hide local effects. A small community bank can lose a long‑standing depositor to an issuer’s account at a larger bank. On the national balance sheet deposits may look unchanged, but the smaller bank may need to secure replacement funding or reduce lending. The receiving bank is not required to lend to the same local borrowers.

The Bank for International Settlements and Federal Reserve research have modeled these mechanics. Those studies describe how household balances can be replaced by issuer accounts or Treasury holdings and how regulatory metrics change, but showing actual, widespread loan reductions would require bank‑level evidence on deposit replacements, loan portfolio changes and where buyers sourced the dollars used to purchase tokens.

Banks can respond in several ways. They can offer higher deposit rates or improved payment services, seek longer‑term borrowing, provide tokenized deposit products that keep customers’ claims on the bank, or consider issuing tokens themselves subject to regulatory approval. The Federal Reserve’s September proposals would set reserve and risk‑management requirements for payment stablecoin issuers and establish a process for supervised banks that want to operate stablecoin subsidiaries. Funds committed to redeem tokens are likely to be treated differently from ordinary retail deposits when regulators and banks assess available funding for lending.

The effects depend on the scale of token use, how issuers back tokens, and where dollar funds originate. Converting many small retail balances into a smaller set of issuer or Treasury‑backed accounts changes the composition of bank funding and can increase funding costs that affect lending prices.