Stablecoin Deposits Drain Banks' Funding, Not Just Their Dollars
The banking system's concern about stablecoins draining dollars from banks may seem unwarranted at first glance. After all, if you use $100 from your bank account to buy newly issued stablecoins, the company issuing them will take that money and put it in their own bank account, giving you a balance you can send around on a blockchain.
This looks like a zero-sum game for banks, where they lose a deposit but get one back. However, this simplistic view overlooks the fact that the $100's owner has changed, and this new owner is likely to be a much more demanding creditor than your average bank customer.
The Bank for International Settlements' 2026 analysis used a similar example to demonstrate how household deposits can return as issuer deposits while making banks' funding less dependable under regulatory measures. The key issue here is that the value of a deposit to a bank depends not only on its size but also on how long the customer will leave it there and what it costs to keep it.
In this scenario, if you buy Treasury bills with your $100, the issuer's bank balance may fall by $100, while the seller's rises by $100. This might seem like a neutral transaction from a banking perspective, but the owner of those Treasury bills could be much more demanding than your average customer.
Ultimately, the stablecoin debate is not just about how many trillions will leave banks; it's also about the quality of deposits and the potential impact on lending costs. As the Fed's research shows, a bank with $120 million in qualifying liquid assets may still have its funding less dependable if estimated net outflows increase to $110 million.
In this sense, stablecoins are not just a threat to banks' profitability but also an opportunity for them to adapt and compete by offering better payment services or more attractive interest rates. After all, as the BIS General Manager Pablo Hernández de Cos noted in his August speech, reserve composition is key to understanding the banking effects of stablecoins.