EddieJayonCrypto
13 May 25
Members of the Federal Reserve’s Community Depository Institutions Advisory Council (CDIAC) expressed concerns that nonbank-issued stablecoins could accelerate deposit outflows from traditional banks and reduce credit availability to local communities. They compared this risk to past fund shifts to ...
The Federal Reserve’s Community Depository Institutions Advisory Council (CDIAC) recently raised alarms over nonbank-issued stablecoins potentially accelerating deposit outflows from traditional banks, thereby threatening credit availability within local communities. Council members drew parallels between stablecoins and historical financial disintermediation, particularly the late 20th-century migration of funds to money market mutual funds. They highlighted the risk that stablecoins might undermine the deposit bases of community banks, which are crucial for lending to households and small businesses. The discussion also compared stablecoins to central bank digital currencies (CBDCs), warning that both forms of digital money could divert deposits from insured banks without being subject to the same regulatory oversight or liquidity requirements. This asymmetric regulatory treatment poses risks to banks’ lending capacities, especially for localized credit essential to Main Street borrowers. Members of the council urged policymakers to integrate stablecoins into supervisory frameworks that address financial stability, consumer protection, and systemic risk. They emphasized the necessity of consistent regulation between bank and nonbank issuers to prevent regulatory arbitrage and preserve core banking functions, such as maintaining insured deposits and liquidity provisioning. Fed Chair Jerome Powell echoed support for regulating stablecoins, acknowledging their broad appeal. He affirmed the Federal Reserve’s openness to banking sector engagement with the crypto industry, signaling a collaborative approach to managing the evolving digital asset landscape while safeguarding financial stability.