Banks in the Age of Stablecoins

[Joe Leote]

I haven't read all of this long article:

The Fed - Banks in the Age of Stablecoins: Some Possible Implications for Deposits, Credit, and Financial Intermediation

Figure 1 the pie chart on far right shows a StableCoin Fund (SCF) holding 100% deposit assets against its nominal $ liabilities. The mechanics for the purchase of $1/coin in SCF and of $1/share in money market mutual funds (MMMF) are the same. Checking deposits move from the owner to the SCF/MMMF to clear payment for each coin or fund share. When the SCF/MMMF buys a Treasury, the deposit moves to the unit who sold the Treasury. The pie chart in the middle shows an asset mix of repo, Treasuries, and bank deposits. When banks do repo with nonbanks, this occurs on the liability side of the aggregate bank balance sheet, and it reduces deposits in the old M1,M2,M3 money supply measures. If a bank or bank sector seems to be losing deposits either the balance sheet is unwinding (assets are actively being sold to nonbanks) or the bank or bank sector is issuing non-deposit liabilities as substitutes for deposits such as bank repo liabilities. The flows of deposits through the SCF/MMMF institutions do cause banks to deal with wholesale institutions which are more likely to do repo with banks to hold secured bank liabilities rather than large uninsured deposits.

Joe