What Stablecoins Could Mean for Bank Deposits 

The GENIUS Act has officially turned stablecoins into a regulated part of the financial system. Stablecoins are digital tokens meant to hold a steady value—usually $1—by being fully backed by a fiat currency or reference asset and quickly redeemable, much like a money market fund. 

That opens the door for banks to issue their own—or partner with others that do. But it also raises a big question for the banking industry: 

Will stablecoins pull deposits away from traditional banks? 

“There’s definitely a risk of disintermediation,” Douglas Elliott, partner at Oliver Wyman, told ProSight, “where banks, particularly smaller banks, may find that some of their deposit money is withdrawn to be put into stablecoins or into tokenized deposits offered by larger banks.” 

That’s one reason some smaller players are “at least conceptually looking at consortium-type activities so they’re not all left behind”—for example, by jointly issuing a stablecoin or building a shared platform. 

What’s allowed under the new law? 

The GENIUS Act defines a new class of fully backed, non-interest-bearing “payment stablecoins.” These can be issued by a subsidiary of a bank or by a non-bank subsidiary licensed by the OCC. States can also license issuers, but only if federal regulators agree that their requirements are “substantially similar” to federal rules. 

According to Elliott, who focuses on financial regulation and associated public policy issues and their implications for the financial sector, here’s what we know so far: 

• Reserves must equal 100% of the promise to repay. 

• There will be some capital required, perhaps “a leverage ratio of 1 or 2%.” 

• Issuers can’t pay interest, but “they could provide rewards points or potentially rebates to merchants who encourage the use of stablecoins.” 

What are banks doing about it? 

“Many of them are actively exploring whether they should set up their own stablecoin, whether they should have a consortium … [or] whether instead they should do tokenized deposits,” Elliott said. 

Tokenized deposits are a blockchain-based version of traditional deposits. “There are even tokenized money market funds that asset managers are offering,” he added. 

What concerns regulators? 

Elliott noted that some fear stablecoins— particularly those backed by Treasury holdings—may grow large enough to move markets. “If you had people get scared about a big stablecoin issuer and went to withdraw their funds, that would require a lot of selling of Treasurys at possibly fire sale prices,” Elliott explained. "You could see where there could be real liquidity problems in the Treasury market and you could see rates go up quite substantially for at least a short period of time.” 

He also said that some policymakers have “concerns that anti-money laundering … requirements may not be effective enough, so that the existence of stablecoins as a big payments medium could conceivably add additional money laundering risk or terrorist financing risk.” 

The bottom line: Stablecoins are now legal, regulated, and bank-adjacent. Whether banks build their own or not, the deposit landscape is shifting—and strategic decisions will need to follow. 

For a big-picture look at recent regulatory and policy changes, register for Elliott’s upcoming RMA by ProSight webcast, “Taking Stock of the Regulatory Scene a Half Year Into the New Administration,” scheduled for August 21.