PCN-branded illustration of stablecoin reserve dollars moving between separate bank funding channels

Stablecoin Dollars May Stay in Banks—But Your Next Loan Can Still Get More Expensive

By Isaac • October 4, 2026 7:11 am • Comments

The loudest argument about stablecoins and banks usually starts with the wrong question.

The dollars remain when someone moves money from a checking account into a dollar-backed token. Stablecoin issuers generally hold reserves in cash, short-term Treasury bills and similar liquid assets.

Much of that money stays inside the financial system. The original bank can still lose a dependable deposit—and the cheap funding behind its loans.

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CryptoSlate focuses on the distinction between where dollars exist and who controls the funding relationship. If $1,000 leaves a community bank deposit account and ultimately becomes a reserve balance at a large custodial bank, the system still contains the money.

The community bank has lost a relatively stable source of funding and may need to replace it with a higher-rate deposit, wholesale borrowing or fewer loans.

That is the real transmission channel. Banking is not one giant shared balance sheet. A dollar landing at a different institution does not automatically flow back to the lender serving the same families and businesses on the same terms.

The scale is becoming easier to track. Bloomberg recently added an hourly stablecoin dashboard to its Terminal using Allium data:

Reserve composition and transaction flows determine how much pressure stablecoin growth places on bank funding. A token fully backed by cash at banks behaves differently from one backed mainly by Treasury bills.

A bank that wins the reserve account can gain deposits even while thousands of smaller institutions lose customer balances.

The second view shows why institutions want that hourly picture:

The policy debate is more nuanced than either side often admits. A recent White House Council of Economic Advisers model estimated that banning stablecoin yield would add about $2.1 billion in bank lending under its baseline assumptions—just 0.02% of total loans.

The model starts with roughly $300 billion of stablecoins, equal to about 1.7% of deposits, and assumes issuers keep 12% of reserves as bank cash. It estimates a yield ban would move $54.4 billion toward deposits, but only $6.5 billion would enter the lending multiplier after reserve composition is considered.

After bank liquidity buffers, the model puts additional lending capacity at $4.6 billion and actual new loans at $2.1 billion. It also estimates a $940 million annual welfare loss to holders versus $140 million of lending benefit, producing an $800 million net cost.

The numbers depend on assumptions, but they sharply narrow the claim. Funding shifts are real; blocking stablecoin yield may still deliver far less lending than bank-industry warnings imply.

A New York Fed staff report adds another layer. Its model compares stablecoins backed by safe assets with traditional and tokenized bank deposits that fund both safe and risky assets.

The authors find that the best policy depends on bank regulation and the incentive to take risk. With high regulatory costs and limited risk-shifting, tokenized deposits can raise welfare by expanding bank credit.

With lighter regulation and stronger risk-taking incentives, the model can favor stablecoins even though they crowd out some credit. Between those cases, competition between stablecoins and tokenized deposits produces the best result.

Stablecoins only need to make deposits more mobile, more competitive and less predictable to change the price of credit. Banks may pay customers more for deposits, squeeze margins, lift loan rates or make fewer loans.

The winner will depend less on whether the dollars still exist and more on whose balance sheet they land on.

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