Federal Reserve warns stablecoins could pose risks to bank deposits and credit capacity

PANews reported on May 14th that recently disclosed meeting minutes from April 10th show that members of the Federal Reserve's Community Depository Institutions Advisory Council (CDIAC) expressed concerns about stablecoins issued by non-bank institutions. The committee believes that such stablecoins could accelerate bank deposit outflows and weaken community banks' ability to provide loans to small and medium-sized enterprises and households. The committee compared stablecoins to the impact of money market funds on the banking industry in the late 20th century, noting their similarity to central bank digital currencies (CBDCs) in potentially diverting deposits from the banking system. They particularly emphasized that current stablecoins are not subject to equivalent liquidity regulatory requirements, which could lead banks to reduce credit scale, especially affecting small borrowers who rely on local bank services. The committee recommended incorporating stablecoins into the financial stability regulatory framework, calling for unified standards for banks and non-bank issuers to prevent regulatory arbitrage. This stance echoes Federal Reserve Chair Powell's statement on April 16th - while acknowledging stablecoins' broad appeal, he emphasized the need to establish an appropriate regulatory system.