When people buy stablecoins, their money doesn't leave the banking system. But it does move from many small accounts to a few big ones, forcing banks to rethink how they fund loans and possibly making borrowing more expensive.
When someone moves $100 from their personal bank account to buy stablecoins, the money doesn't disappear from the banking system. Instead, it usually lands in a much larger account run by the stablecoin issuer. On paper, the total deposits look the same. In reality, the risk for banks changes because the money is now concentrated in fewer hands.
From retail to wholesale risk
Banks depend on lots of small, steady deposits from regular customers to fund loans and handle daily payments. These retail deposits are usually reliable. Most people don't pull out all their money at once. But when stablecoin issuers collect dollars from thousands of users and pool them into one big institutional account, banks lose that stability. The issuer, now holding the account, can move huge sums with a single decision. This makes the bank's funding more unpredictable and less steady.
The Bank for International Settlements demonstrated that a $100 stablecoin purchase can turn a household deposit into a more fragile issuer deposit, which regulators view as a less stable funding source.
This isn't just a theory. The Bank for International Settlements points out that a $100 stablecoin purchase can turn a household deposit into an issuer deposit, which regulators see as less stable. The Liquidity Coverage Ratio, a key rule for banks, treats institutional accounts as more likely to be withdrawn quickly in a crisis. Because of this, banks may have to keep more cash on hand or pay higher rates to attract longer-term deposits. Both options raise their costs.
Stablecoin reserves and banking impact
Stablecoin issuers don't always keep their reserves in bank accounts. Many buy short-term U.S. Treasury bills instead. They earn interest and plan to sell these assets if users want to redeem tokens. If an issuer buys Treasuries from a nonbank investor, the money just moves from the issuer's bank to the seller's bank. The total deposit base stays the same, but the ownership shifts. If the issuer buys Treasuries from a bank, that bank's balance sheet shrinks, which can limit its ability to lend. Where stablecoin reserves end up-whether as bank deposits or government debt-shapes the real effect on bank funding and lending.
Not every stablecoin transaction creates new reserves. If someone buys existing tokens from another user, the money just moves between people, not into the issuer's reserve account. The impact also depends on the bank. A small community bank might lose a deposit to a stablecoin issuer, while a big bank gains a new, concentrated account. The national deposit total might not change, but local lending can shift a lot.
The Bundesbank's 2026 research found that stablecoins increase the cost of bank funding and reduce credit supply to firms through the banking channel. In the EU, MiCA regulation now requires significant asset-referenced token issuers to hold up to 60% of reserves in bank deposits, making reserve structure a key factor for banking sector stability.
Competitive pressure and adaptation
Banks can't count on keeping customer deposits on easy terms forever. If stablecoins offer faster or more flexible payments, people may switch. Banks can fight back by raising interest rates, improving payment services, or looking for longer-term funding. But all these moves cost money. Higher funding costs often get passed on to borrowers, making loans pricier even for people who never use stablecoins.
Some banks are testing tokenized deposits, which put customer balances on a blockchain but keep the bank's liability. Others are looking at issuing their own stablecoins, but that means meeting new rules and risk checks. The Federal Reserve's latest proposals would set clear requirements for payment stablecoin issuers and for banks that want to issue stablecoins through subsidiaries. Money set aside to redeem stablecoins can't be used as regular funding for long-term loans, which makes the business harder to manage.
Market data and regulatory context
Stablecoin use has grown fast in recent years. Big issuers now hold large reserves in both bank deposits and U.S. Treasuries. Regulators are watching closely. The Federal Reserve and Bank for International Settlements are studying how stablecoin flows affect bank liquidity and lending. As reported earlier, stablecoin card spending hit $1.17 billion in September, showing more people are using them for payments and settlements. How banks, issuers, and users adapt will depend on how the rules evolve.
So far, stablecoins haven't caused a clear drop in bank lending. But the risk is real. The way reserves are structured, how deposits are concentrated, and how regulators treat big institutional accounts all affect how much credit banks can offer. The final impact depends on how banks replace lost retail deposits, how issuers manage reserves, and how strictly regulators enforce liquidity and risk rules.
Stablecoins are digital tokens meant to keep a fixed value, usually tied to the U.S. dollar. Most top stablecoins are backed by a mix of bank deposits and short-term government debt. Their stability depends on how liquid and safe their reserves are, and whether issuers can meet redemptions. When stablecoin reserves stay in banks, they help fund the banking system. But when reserves move to Treasuries or other assets, the effect on bank liquidity and lending can be big. People thinking about using stablecoins for payments or savings should know that while the tech brings speed and flexibility, it also brings new risks and changes for both banks and borrowers.
