In a recent discussion surrounding the regulation of stablecoins following the signing of the GENIUS Act by former President Donald Trump, several banks have raised concerns about the potential impact on their deposits. They argue that the growing popularity of stablecoins might lead to significant deposit erosion, where customers move their funds from traditional bank accounts into digital tokens. Rob Nichols, president and CEO of the American Bankers Association, highlighted this concern, stating that stablecoins risk disrupting essential banking activities such as deposit-taking and lending, which are vital for the financial system.
In stark contrast, Coinbase has published a white paper titled “Beyond the Deposit Debate: Why Stablecoins Complement Banks and Strengthen the Dollar,” challenging the notion that stablecoins pose a serious threat to bank deposits. Faryad Shirzad, Coinbase’s chief policy officer, emphasized in a blog post that recent analyses suggest no meaningful connection between stablecoin adoption and deposit flight, particularly for community banks. He maintained that larger banks would also likely remain unaffected.
Coinbase’s white paper outlines several key arguments supporting their position. It asserts that most stablecoin transactions are conducted through cross-border activities, thus enhancing the value of the U.S. dollar. Additionally, stablecoins facilitate on-chain lending, which can broaden access to credit for consumers and businesses, rather than detract from traditional banking services. Furthermore, the paper claims that stablecoins are more likely to compete within the U.S. payment ecosystem rather than directly impacting bank deposits.
Supporting their claims, the white paper cites empirical evidence showing that stablecoin usage has predominantly engaged international markets, thereby mitigating risks to deposits in U.S. banks. Research from Charles River Associates also found no significant correlation between the growth of stablecoins and fluctuations in bank deposits over the past four years, applying even to community banks.
Shirzad proposed that banks should not view stablecoins solely as a threat but rather as an opportunity for innovation. He argues that these digital currencies could facilitate instant settlements, reduce correspondent banking costs, and enable around-the-clock payments. He also pointed out that banks might be more concerned about the potential disruption to their significant yearly earnings from swipe fees—estimated at $187 billion—due to the ability of stablecoins to bypass these fees.
At the same time, as the discourse surrounding stablecoins evolves, various government agencies are shifting towards more pro-crypto policies. For example, the Securities and Exchange Commission (SEC) has been working to lessen regulatory burdens on the burgeoning digital asset market. However, the rise of crypto ATMs has drawn scrutiny, as local and state governments intensify regulatory oversight in response to increased incidents of bitcoin ATM scams.
As the debate continues, the relationship between traditional banks and digital currencies remains a focal point of contention in the financial sector.
