Stablecoin Disintermediation (FRBNY)
The New York Federal Reserve Bank (FRBNY) published a paper that develops a theory and provides empirical evidence that payment stablecoins disintermediate banks not only by drawing deposits away from traditional institutions but also by transmitting significant liquidity stress to the banks that service stablecoin issuers. Using matched data between on‑chain issuance/redemption activity of a large U.S. dollar stablecoin and Fedwire interbank payments, the authors identify “partner banks” that hold stablecoin deposits and process flows for the issuer. They show that after new partnerships form following the 2023 crypto‑bank failures, these banks experience large, persistent increases in interbank payment volume (about 67%) and in intraday reserve balance volatility tightly linked to daily primary market stablecoin activity, implying that stablecoin-related payments act as frequent liquidity shocks. To manage these shocks, partner banks operate “narrowly,” holding substantially higher reserve balances—roughly 1.5 billion dollars more on average and a much larger reserves‑to‑assets ratio—while their loan share of assets falls by about 14 percentage points relative to similar banks, indicating a crowding‑out of lending capacity. The authors argue that this liquidity channel of disintermediation broadens the ways stablecoins can weaken bank deposit franchises, concentrate reserves in a few institutions, complicate the central bank’s task of gauging system‑wide reserve demand, and potentially propagate or amplify run dynamics from stablecoins to banks during stress events. [FRBNY]
