> ## Content Index > Fetch the complete content index at: https://stablecoininsider.org/llms.txt > Use this file to discover other available public pages before exploring further. # Stablecoins Do Not Drain Bank Deposits, but They Change What Those Deposits Cost - URL: https://stablecoininsider.org/stablecoins-bank-funding-costs-lending/ - Published: 2026-10-04T14:49:41.000Z - Updated: 2026-10-04T14:49:41.000Z - Description: Learn why stablecoin purchases return to banks as issuer deposits, how that raises funding costs and loan pricing, and what the BIS modelling does not prove. - Author: Milos Djukanovic - Tags: News, Macro, Analysis The argument that stablecoins drain dollars out of banks is mostly wrong, and the more careful version of the concern is more interesting. When someone buys a stablecoin, the money usually returns to the banking system through the issuer's own accounts. What changes is who owns the deposit and what it costs the bank to keep it. The Bank for International Settlements used a $100 purchase to show this. Household deposits leave, issuer deposits arrive, and the total sitting in banks can look unchanged while the funding behind it becomes less dependable under regulatory liquidity measures. If banks pay more for that funding or hold larger liquid buffers against it, some of the cost reaches borrowers. That includes borrowers who have never touched a stablecoin. > A deposit's value to a bank is not the number on it. It is how long the customer is likely to leave it there and what the bank must hold against the chance they do not. ### Key Takeaways - Stablecoin purchases often return to banks as issuer deposits rather than disappearing. - Issuer deposits are treated as flightier and costlier than retail deposits. - Higher bank funding costs can pass through to loan pricing. - BIS modelling finds the lending drag slightly outweighs the fiscal benefit long term. - No evidence yet shows stablecoins have actually caused banks to cut lending. --- ## The $100 Example In the BIS framework, a household buying $100 of stablecoins removes $100 of retail deposits. Where that money lands next determines the effect on the bank. If the issuer holds its reserves as bank deposits, the $100 comes back into the banking system under a different name. If instead the issuer's reserves sit at the central bank, the bank loses both the $100 deposit and $100 of its most liquid asset at once. Those two scenarios produce very different outcomes from the same customer action. That is why reserve composition is the variable that matters rather than the headline size of the stablecoin market. --- ## Where the Reserves Sit Decides Everything BIS General Manager Pablo Hernández de Cos put reserve composition at the centre of the banking effects in an August speech. He noted that if stablecoin reserves were held predominantly as wholesale bank deposits, retail funding would give way to concentrated, more rate-sensitive liabilities. That is a description of the funding mix shifting rather than shrinking. Concentrated wholesale money reprices faster and leaves faster than a current account. Regulators are now writing rules that set this composition directly. The Federal Reserve proposed reserve, capital, and custody requirements for the issuers it supervises last month, which we covered in our report on the [Fed reserve proposals](https://stablecoininsider.org/fed-genius-act-stablecoin-proposals/). [![Fed Puts Bank-Grade Rules on Stablecoin Reserves and Opens Comment](https://storage.ghost.io/c/73/6a/736af0e4-2274-4543-a329-2952b2b52abc/content/images/2026/10/Screenshot-2026-10-04-at-16.42.01.png)](https://stablecoininsider.org/fed-genius-act-stablecoin-proposals/) --- ## Why Banks Prefer Boring Depositors Liquidity rules assign different assumptions to different deposits about how much might leave in a stress window. A salary account is treated as sticky, while a large institutional balance tied to redeeming tokens is not. Money committed to meeting redemptions cannot be treated as ordinary funding available on the same terms for a book of long-term loans. The bank must either hold more liquid assets against it or pay more to keep it. Research cited by the BIS makes the same point from the pricing side. Deposit rate competition from stablecoins raises banks' marginal funding costs and pushes their portfolios towards liquid assets, which is exactly where lending capacity comes from. --- ## The Channel Pulling the Other Way There is a second effect working in the opposite direction. Issuer demand for short-dated Treasury bills lowers sovereign borrowing costs and expands fiscal space, which supports activity rather than restraining it. BIS modelling calibrated to the United States finds the fiscal channel acts faster during the transition, producing positive short-term output effects, while the bank lending channel dominates slightly in the long run. The net result in their simulations at $1 trillion, $2 trillion, and $3 trillion market sizes is marginally negative. That Treasury demand is also now a policy objective. Washington has been weighing an initiative to spread dollar stablecoins abroad partly for this reason, which we covered in our report on the [overseas dollar push](https://stablecoininsider.org/us-overseas-dollar-stablecoin-push/). [![Washington Weighs Exporting Dollar Stablecoins to Fund Its Own Debt](https://storage.ghost.io/c/73/6a/736af0e4-2274-4543-a329-2952b2b52abc/content/images/2026/10/Screenshot-2026-10-04-at-16.42.27.png)](https://stablecoininsider.org/us-overseas-dollar-stablecoin-push/) --- ## The Numbers, and What They Rest On Federal Reserve analysis cited by State Street estimates that $100 billion of net deposit outflow could reduce bank lending by roughly $60 billion to $126 billion. One scenario with $2 trillion of stablecoin growth drawn mainly from deposits implies $1.2 trillion to $2.5 trillion less lending and about 40 basis points higher average funding costs. Those are model outputs under assumed conditions, not observations. The BIS examples show how the accounts can work; they do not demonstrate that stablecoins have already caused any bank to cut lending. Establishing that would require evidence from the banks involved, including how they replaced the lost deposits and what happened to their loan books. That evidence has not been published. --- ## Regulation Writes the Answer Because the outcome depends on where reserves sit, the rules determine the result more than the market does. MiCA requires a portion of stablecoin reserves to be held as bank deposits, which keeps the money in banks but concentrates it. The ECB and EU central banks have been seeking changes to that minimum deposit requirement, and issuers have taken positions around it, as we covered in our report on AllUnity's [MiCA dollar stablecoin](https://stablecoininsider.org/allunity-usdau-mica-dollar-stablecoin/). Smaller banks are the ones most exposed either way, which translates into headwinds for small business lending rather than for the system as a whole. [![AllUnity Launches a MiCA Dollar Stablecoin While Its Euro Token Sits Near Zero](https://storage.ghost.io/c/73/6a/736af0e4-2274-4543-a329-2952b2b52abc/content/images/2026/10/Screenshot-2026-10-04-at-16.42.55.png)](https://stablecoininsider.org/allunity-usdau-mica-dollar-stablecoin/) --- ## FAQs: ### 1\. Do stablecoins remove deposits from the banking system? Not necessarily in aggregate. When a household buys stablecoins, the issuer typically places the proceeds back into bank deposits or short-term instruments, so the total can remain similar. What changes is the ownership and the regulatory treatment of that deposit. ### 2\. Why is an issuer deposit worse for a bank than a retail deposit? Liquidity rules assume institutional deposits tied to redemption obligations are more likely to leave in a stress window than retail balances. Banks must therefore hold more liquid assets against them or pay more to retain them, which raises funding costs. ### 3\. How could this raise borrowing costs? If banks face higher marginal funding costs, they tend to reprice loans and shift portfolios towards liquid assets. That cost can reach borrowers who do not use stablecoins at all, because loan pricing reflects the bank's overall funding mix. ### 4\. What does the BIS actually conclude? Its modelling identifies two opposing channels: a contractionary bank lending channel and an expansionary fiscal space channel from issuer demand for Treasury bills. Calibrated to the United States, the lending channel dominates slightly in the long run, with the net output effect marginally negative in simulations. ### 5\. Has this already happened? No evidence has been published showing stablecoins have caused banks to reduce lending. The BIS work describes mechanisms and runs scenarios, and confirming real-world effects would require data from affected banks on how they replaced deposits and what happened to their loan books. --- **Disclaimer:** *This content is provided for informational and educational purposes only and does not constitute financial, investment, legal, or tax advice; no material herein should be interpreted as a recommendation, endorsement, or solicitation to buy or sell any financial instrument, and readers should conduct their own independent research or consult a qualified professional.*