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A free scan shows the junk files, broken settings and background clutter dragging Windows down - then fixes them in one click.Free scan · Windows 10 & 11Stablecoins do not automatically remove a dollar from the banking system when someone buys one. The dollar may become an issuer’s bank deposit, or it may pass to a seller of Treasury bills who deposits the proceeds. But the identity, concentration and movement of those deposits can change how banks fund themselves and how much liquidity they keep on hand. That can constrain lending or raise banks’ funding costs, though the available evidence does not establish that stablecoins have already caused a general rise in loan rates.
Does buying a stablecoin take money out of banks?
Not necessarily. A stablecoin purchase changes who owns the payment and what asset backs the token; it does not, by itself, tell you whether total commercial-bank deposits fall. The answer depends on the issuer’s reserve assets, the seller receiving the payment and where the funds settle.
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It helps to keep three questions separate:
- Deposit quantity: How much money is held as deposits across commercial banks?
- Deposit composition: Which banks hold those deposits, and are they retail accounts or large issuer balances?
- Usable lending capacity: How much can banks lend after accounting for funding costs, liquidity needs and other constraints?
A change in one does not mechanically determine the others. The Federal Reserve’s Jessie Jiaxu Wang noted in December 2025 that reserve management “should critically influence the net effect on bank deposits.”
If the issuer keeps the money as a bank deposit
Suppose a customer pays $100 from a bank account to buy stablecoins, and the issuer holds the corresponding reserve as a deposit at a commercial bank. The customer’s deposit falls by $100 and the issuer’s deposit rises by $100. In this simplified transaction, the deposit has changed owners; it has not disappeared from the banking system. The receiving issuer deposit may be held at a different bank, however, and it may be much larger and more concentrated than the customer’s former retail balance.
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If the issuer buys Treasury bills
An issuer can instead hold reserve assets such as Treasury bills or other short-term instruments. If it buys bills from a nonbank seller, payment generally gives the seller a deposit. That can leave commercial-bank deposits in place while changing who holds them and which institution has them. The result can differ if a transaction settles outside commercial banks, including into the Treasury General Account; subsequent Treasury spending can return funds to the banking system. The path of the proceeds matters, not just the fact that a stablecoin was issued.
Stablecoin reserves can include different asset types, and issuers do not all use the same mix. The Federal Reserve’s May 2026 Financial Stability Report described reserve pools typically including Treasury bills and other short-term instruments, while noting that some also contained loans or other digital assets.
Why can deposit composition matter if the money stays in banks?
Retail deposits spread across many customers are not identical, from a bank’s perspective, to a large balance held for an issuer. Issuer balances can be concentrated and may move quickly when customers redeem tokens or shift funds. A bank that depends on such funding may need to pay more to retain it, replace it with other funding, or hold more liquid assets against possible outflows.
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Each response has a potential cost. Paying more for deposits raises the bank’s funding expense. Replacing deposits with other funding may also cost more. Holding additional liquidity can leave fewer resources available for other assets, including loans. Those channels can make lending less attractive or more constrained even when a dollar remains somewhere in the banking system.
That is not the same as proving borrowers will pay higher interest rates. A bank’s funding expense, the amount of credit it supplies, and the interest rate charged to a particular borrower are related but distinct outcomes. The studies discussed below provide evidence about payment activity, bank balance sheets and modeled lending; they do not establish a universal increase in consumer or business loan rates.
What has the New York Fed found at banks partnering with stablecoin issuers?
A February 2026 preliminary staff report by Michael Junho Lee and Donny Tou examined banks identified as partners of stablecoin issuers. The authors linked on-chain primary-market activity with wholesale interbank payments and compared partner banks with other banks. They report that partner banks’ interbank payment activity increased 67 percent in the nine months after new issuer partnerships. In their analysis, a one-standard-deviation increase in primary-market activity corresponded to about $280 million in additional Fedwire payment activity at the average treated bank relative to controls.
The report also describes a liquidity response alongside that payment activity. Partner banks retained roughly $1.5 billion in additional reserve balances in a subsequent period, and their loan share fell by 14 percentage points relative to the control group. Lee and Tou write that “partner banks’ loan share of assets contracts relative to peers.”
These are findings about the report’s treated banks and comparison group, not estimates that stablecoins reduced total U.S. lending by 14 percent. The authors label the report’s findings preliminary. It supports a plausible mechanism—issuer-related payment flows can coincide with more reserve holding and a lower loan share at partner banks—but it does not show that every bank or issuer will have the same experience, or quantify a systemwide change in loan prices.
Why do other estimates show smaller or different lending effects?
Other analyses examine different questions and assumptions. Their estimates are not direct contradictions of the partner-bank evidence: one studies observed bank-level activity, while others model how lending might change under specified portfolio or policy scenarios.
| Analysis | Question and result | How to interpret it |
|---|---|---|
| White House Council of Economic Advisers, September 2026 | In a modeled $300 billion stablecoin-market scenario, prohibiting yield shifts $54 billion from stablecoins to traditional bank deposits. The model estimates about $2.1 billion more lending, or 0.02 percent, and about $800 million per year in household costs net of the estimated lending gain. | These are model outputs for a yield-prohibition scenario, not observed outcomes or a forecast for every policy design. The CEA’s accounting point is that “The household’s deposit is not destroyed.” That does not rule out effects through funding composition, bank constraints or settlement. |
| Federal Reserve Bank of Kansas City, 2025 | Under an illustrative assumption that current bank and issuer asset mixes persist, a marginal $1 shift into stablecoins could correspond to about $0.50 less lending and $0.30 more Treasury holdings. | This is portfolio accounting under stated assumptions, not a measured universal multiplier or an estimate of loan pricing. The result depends on where stablecoin purchases originate and what sellers do with the proceeds. |
The CEA’s September 2026 analysis also discusses more extreme outcomes that require multiple assumptions to change together. Its baseline result is a modest modeled lending increase, not evidence that deposit composition has no consequences. Conversely, the Kansas City Fed calculation does not establish that every stablecoin dollar crowds out a fixed amount of bank lending.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.How large is the market, and what does its size tell us?
The Federal Reserve’s May 2026 Financial Stability Report said stablecoin assets grew 16 percent between July 2025 and the end of 2025, reaching about $320 billion when the report discussed the market. That is the report’s dated figure, not a live total for October 2026. The report also said assets were concentrated among the two largest issuers.
Market size matters because funding and liquidity effects can become more consequential as balances grow. But the total alone cannot tell you how much bank lending changes: the reserve mix, location of deposits, source of buyers’ funds and destination of sellers’ proceeds all affect the result.
What determines whether lending gets more expensive?
The net effect depends on several linked conditions, rather than on a simple rule that every stablecoin dollar either leaves a bank or stays there:
- Reserve mix: Deposits, Treasury bills, repo, money-market fund shares and central-bank balances have different implications for bank deposits and liquidity.
- Settlement destination: A deposit paid to an issuer or bill seller may remain in a commercial bank; settlement elsewhere can temporarily move funds out, with later flows potentially reversing that movement.
- Funding stability: A concentrated balance that can move quickly may lead a bank to pay more or carry more liquidity than a diversified pool of retail deposits.
- Payment timing: Intraday redemptions and correlated payment demands can create liquidity needs even at a bank that benefits from holding issuer deposits.
- Bank constraints: Capital, liquidity rules, other funding options and the broader reserve environment affect whether a bank responds by changing lending, prices or other assets.
- Source of purchase funds: A customer may finance a stablecoin purchase by reducing a bank deposit, selling another financial asset or using funds that otherwise would have been invested elsewhere. Those cases do not imply the same change in bank credit or Treasury demand.
In the United States, the GENIUS Act was signed in July 2025 and established a federal framework for payment stablecoins. The CEA describes the law as requiring one-for-one backing in specified reserve assets and barring issuers from paying yield directly to holders; its September 2026 analysis also discusses the policy debate over affiliate or third-party yield arrangements. The Federal Reserve’s May 2026 report said agencies were then drafting rules on core provisions including reserve transparency and redemption rights. That describes the status reported in May, not the current status of every rule.
So, do stablecoins drain banks or make loans more expensive?
Neither outcome follows automatically. A stablecoin purchase can change the owner or location of a deposit without eliminating it from the banking system. Even when deposits remain in aggregate, concentration and fast payment flows can make funding less comfortable for particular banks, which may respond by retaining liquidity or adjusting lending. Preliminary evidence from issuer-partner banks is consistent with that channel, while separate models find effects that depend on their assumptions and policy scenarios. The evidence supports a conditional risk to bank funding and lending—not a settled claim that stablecoins have caused a broad rise in borrower interest rates.
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