Stablecoins may not drain banks of dollars but they can still make lending more expensive

When a household buys stablecoins for $100, the amount returns to the banking system but as an institutional deposit controlled by the issuer rather than a retail deposit. Banks value these wholesale deposits less because they are less dependable and more costly to manage, which can degrade their Liquidity Coverage Ratio. The impact on lending depends on the composition of issuers’ reserves and how banks replace their lost funding. Banks may need to turn to longer-term borrowing at less favorable terms, and these additional costs can eventually affect lending conditions for end borrowers, including people who have never heard of stablecoins.

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