Growing Use of Stablecoins Could Reshape How FIs Manage Liquidity, Allocate Assets, NY Fed Report Suggests
NEW YORK — The growing use of stablecoins tied to the U.S. dollar could reshape how banks manage liquidity and allocate assets, potentially leading institutions that support the digital tokens to hold more reserves and make fewer loans, according to a new study from the Federal Reserve Bank of New York.
The paper, titled “Stablecoin Disintermediation,” was authored by economists Michael Junho Lee and Donny Tou and examines how stablecoin activity affects the balance sheets and liquidity management of banks that partner with stablecoin issuers.
The researchers found that while stablecoins rely on traditional banks to function, the relationships can alter the liquidity demands placed on those institutions. Banks serving stablecoin issuers tend to hold larger reserve balances and reduce the share of assets devoted to lending, shifting toward a more reserve-heavy banking model.
Focus of Study
The study focused on developments following the March 2023 collapse of Silicon Valley Bank and other banks that served the cryptocurrency industry. The failures forced stablecoin issuers to quickly establish new banking relationships, creating what the researchers described as a natural experiment.
Economists compared banks that became key partners for stablecoin issuers after the crisis with similar banks that did not. They then analyzed differences in payment activity, reserve volatility and balance sheet composition.
The results showed that stablecoin-related activity can introduce significant liquidity fluctuations. Stablecoin issuance and redemption flows move dollars between issuers and the banking system, often in large and concentrated volumes. When customers redeem tokens, issuers must send dollars through partner banks, creating payment outflows; when tokens are purchased, funds flow into bank accounts.
Those swings can increase intraday volatility in partner banks’ reserve balances, the study found.
Holding More Reserves
As a result, banks supporting stablecoin issuers typically respond by holding more reserves to manage the liquidity swings and reducing the relative weight of their lending activities.
The researchers estimated that banks in their sample experienced a decline of about 14 percentage points in their loan-to-asset ratios compared with peer institutions. The authors described the outcome as a form of disintermediation.
Traditionally, disintermediation occurs when deposits leave banks and move into other financial instruments. In this case, the change occurs through liquidity management: even banks that gain stablecoin deposits may operate more narrowly by holding more reserves and allocating a smaller share of assets to loans.
Other Findings
The study also found that stablecoin partnerships increased payment activity for participating banks. After establishing relationships with large stablecoin issuers, banks in the sample experienced a roughly 67% increase in daily interbank payment values relative to their earlier activity and compared with similar banks.
The effects observed in the study primarily involved mid-sized institutions where stablecoin deposits represented a meaningful share of their balance sheets. The researchers noted that the stablecoin market remains relatively small compared with the overall U.S. banking system, but the findings provide insight into how the impact could scale if adoption grows.
Stablecoins are digital tokens designed to maintain a stable value against the U.S. dollar, typically through a one-for-one redemption promise backed by dollar reserves held in the traditional banking system. Because redemptions and issuances require the movement of funds through banks, stablecoin activity can directly influence payment flows and reserve balances.
What Another Study Found
The research also highlights differences between stablecoins and other forms of digital money. A separate report by the Federal Reserve Bank of New York found that tokenized bank deposits, unlike stablecoins, remain directly linked to bank balance sheets and can be used to fund loans and investments, tying money creation to credit expansion.
The findings suggest that as digital-dollar technologies grow, their effects will extend beyond cryptocurrency markets and into the broader financial system, influencing bank liquidity management, payment flows and credit availability.
Researchers said understanding those dynamics will become increasingly important as digital assets become more integrated into mainstream finance.
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