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

Here's a hypothetical scenario: you want to use $100 out of your bank account to buy newly issued stablecoins. The company issuing the stablecoins takes your dollars, puts them in its own bank account, and gives you a balance you can send around on a blockchain.

You got the product you wanted, and somewhere in the vast and confusing realm of banking, the $100 is still there.

From a distance, this looks like something banks shouldn't worry about. Sure, they lost a deposit, but they also got a deposit back, so why do bankers keep warning that stablecoins could drain the financial system?

The thing is, your bank really liked having you as the customer. If you take your money away, now it owes that money to a company managing withdrawals for thousands of people, with someone paid to decide where the reserves should go.

The dollars came back, but they came back with a different owner, and that owner can be a much more demanding creditor.

This is the part of the stablecoin debate that gets lost when everyone starts estimating how many trillions will leave banks. The amount in the bank can stay the same while the bank gets a much worse deal, because a deposit's value to a bank depends partly on how long the customer will leave it there and what it costs to keep it.

The Bank for International Settlements' 2026 analysis used a $100 purchase to show how household deposits can return as issuer deposits while making banks' funding less dependable under regulatory measures.

If banks have to spend more to support that money, some of the cost could eventually reach people taking out loans, including people who don't even know what a stablecoin is.

The balance in your banking app is money the bank owes you. You have a right to spend it, but the bank doesn't keep every customer's balance in a separate pile waiting to be collected. Its assets also include loans repaid over years, while customers can ask for their deposits much sooner.

Banks can create deposits when they make loans, but they still need to fund the payments customers send elsewhere. Keeping a dependable base of deposits helps them do that.

That arrangement works partly because people don't usually need all their money at once.

Your salary comes in while someone else's rent goes out, and across enough customers, the bank can plan around a reasonably dependable deposit base. It still needs ready cash for payments, but it doesn't expect every account to empty on the first of the month.

That comfort has limits, as any bank run shows. Still, many individual balances used for everyday life can be easier to manage than one very large account whose owner can move the whole amount with a single decision. Bankers call the first kind retail funding and the second wholesale funding.

Stablecoin issuers also have promises to keep. If token holders redeem, the issuer needs dollars to pay them, and withdrawing reserves from a banking partner may be part of getting those dollars ready.

The bank can lose the balance even if it's perfectly healthy, because the issuer's customers need money somewhere else.

The Fed's research on stablecoins and bank deposits describes this conversion from scattered household balances into large institutional accounts. It doesn't make every household loyal or every issuer flighty, but it does explain why adding up all the deposits misses something a bank's funding team has to think about every day.

The Liquidity Coverage Ratio, under the Basel banking framework, compares assets a bank can readily turn into cash with the net cash outflows it could face during 30 days of stress. Different deposits come with different assumptions about how much might leave.

A bank with $120 million of qualifying liquid assets and $100 million of estimated net outflows has a ratio of 120%. A different mix of customers could push estimated outflows to $110 million while those assets stay the same.

The ratio falls to about 109%, even though nobody has withdrawn anything.

While that's just back-of-the-napkin math, it shows why banks can't just shrug and say total deposits haven't moved. Its estimated cash needs have increased, leaving less spare room above the required buffer.

Depending on the rules it faces, the bank may need more liquid assets or funding it can count on for longer, both of which can cost money.

Issuers don't always leave the money in a bank account. They can buy short-term Treasury bills to back their tokens, earning interest while holding an asset they expect to sell when customers want dollars back.

This adds another person to our $100 example: whoever sells the bill. If the issuer buys an existing Treasury from a nonbank investor, the issuer's bank balance falls by $100 and the seller's rises by $100. The money has another owner, but the banking system still has the deposit.

That doesn't tell us how dependable the new owner's balance will be, and it certainly doesn't tell us where they'll move it next. The only thing it tells us is that counting the issuer's Treasury purchase as $100 permanently removed from bank deposits skips the person getting paid for the Treasury.