The findings add evidence to a debate that has drawn warnings from bank executives. Bank of America CEO Brian Moynihan warned in January that as much as $6 trillion in deposits could move into stablecoins and related products offering returns, potentially reducing lending capacity and raising borrowing costs.
The effect is partly based on where issuers put their reserves. A December Federal Reserve staff analysis explained that money placed in stablecoins can return to banks as issuer deposits, changing who supplies banks’ funding even when total deposits remain unchanged.
Larger, uninsured balances could require banks to keep more liquid assets and leave less room for long-term loans that financial institutions issue.
Paying more to retain customers also raises banks’ funding costs. The Fed analysis suggested banks could target better rates at customers most likely to switch, while keeping lower rates for less mobile…
