Banks could slow stablecoin growth by paying savers more, BIS paper finds
A working paper from the Bank for International Settlements (BIS) suggests that a rise in U.S. bank deposit rates could significantly slow stablecoin growth. The study found that a one basis point increase in deposit rates could cut ten-week stablecoin market capitalizati…
Intelligence analysis by Gemini 2.5 Flash
A new BIS paper indicates that traditional banks possess a mechanism to curb the rapid expansion of stablecoins like USDC and USDT: offering higher interest rates on deposits. The research highlights a measurable inverse relationship between bank deposit rates and stablecoin growth, suggesting that competitive deposit pricing could retain customer funds within the banking system, ther…
Imagine banks are like big piggy banks where you keep your pocket money, and stablecoins are like special digital tokens you can use online. A new study found that if the big piggy banks start paying you a little more extra money for keeping your savings with them, you might be less likely to move your money into those digital tokens. It's like choosing the piggy bank that gives you more candy for your coins!
Analysis
BIS
The Bank for International Settlements (BIS) working paper, authored by Rashad Ahmed and Iñaki Aldasoro, provides a significant empirical contribution to the ongoing debate about the interplay between traditional banking and stablecoins. The researchers analyzed weekly data spanning from January 2019 to June 2025, meticulously controlling for various macroeconomic factors such as bitcoin prices, Treasury yields, and broader financial conditions. Their core finding reveals a statistically significant inverse relationship: a mere one basis point increase in average U.S. bank deposit rates was associated with a notable deceleration in stablecoin market capitalization growth.
Specifically, the paper found that this small increment in deposit rates could reduce the average ten-week growth in stablecoin market capitalization from approximately 15% to 12%. Under a more refined estimate, which accounts for banks potentially adjusting rates in response to stablecoin growth, the effect was even more pronounced, slowing growth to about 6%. While the authors acknowledged some methodological nuances in this adjusted estimate, the consistent direction of the impact underscores the potential leverage banks hold. The study, however, cautions that its sample primarily covers a period of high interest rates, suggesting that the findings might evolve as the market for yield-bearing stablecoins and tokenized money market funds matures.
USDC
The BIS paper's analysis revealed a differential impact on various stablecoins, with the relationship between bank deposit rates and growth being notably stronger for Circle’s USDC compared to Tether’s USDT. This distinction is a critical insight, as it suggests that the efficacy of banks' deposit pricing strategy may vary depending on the stablecoin's user base and operational ties. The authors attributed this stronger correlation for USDC to its closer connections with U.S. users, implying that American consumers might be more sensitive to domestic bank deposit rates when deciding where to hold their funds.
This finding aligns with the general understanding of USDC's regulatory compliance and its perceived integration within the U.S. financial ecosystem, making its users potentially more susceptible to traditional financial incentives. In contrast, USDT, with its broader global user base and often perceived as having less direct ties to the U.S. banking system, showed a weaker, though still present, correlation. This nuance highlights that while competitive deposit rates can generally slow stablecoin adoption, the specific impact can be influenced by the stablecoin's geographical user concentration and its perceived regulatory environment.
Brian Moynihan
The findings of the BIS paper resonate with concerns previously voiced by prominent figures in traditional finance, such as Bank of America CEO Brian Moynihan. In January, Moynihan issued a stark warning, estimating that as much as $6 trillion in bank deposits could potentially migrate into stablecoins and related products that offer competitive returns. Such a significant outflow of deposits could have profound implications for the banking sector, potentially reducing banks' capacity to lend and subsequently increasing borrowing costs across the economy.
This potential shift in funding sources is not merely about deposit loss but also about the changing nature of bank liabilities. A Federal Reserve staff analysis, cited in the article, explained that while money placed in stablecoins might eventually return to banks as issuer deposits, it fundamentally alters who supplies banks' funding. This shift towards larger, uninsured balances from stablecoin issuers could necessitate banks holding more liquid assets, thereby reducing the capital available for long-term loans. The BIS paper, by demonstrating a tangible link between deposit rates and stablecoin growth, provides a practical lever that banks could employ to counteract these trends, potentially by strategically targeting higher rates at customers most prone to switching to stablecoins.
Key points
- A BIS working paper found that a 1 basis point rise in U.S. bank deposit rates predicted slower stablecoin growth.
- This small increase could cut average ten-week stablecoin market capitalization growth from 15% to 12%, or even 6% under adjusted estimates.
- The effect was more pronounced for Circle's USDC, linked to its closer ties to U.S. users, than for Tether's USDT.
- The findings suggest banks retain some influence over stablecoin adoption through competitive deposit pricing.
- Bank of America CEO Brian Moynihan previously warned of potential $6 trillion deposit shifts to stablecoins, impacting lending capacity and borrowing costs.
If banks strategically increase deposit rates, they could effectively slow the migration of funds to stablecoins, preserving their deposit base and maintaining lending capacity. This proactive approach could help traditional financial institutions remain competitive and stable in an evolving digital asset landscape.
Despite the potential, raising deposit rates increases banks' funding costs, which could squeeze profit margins or lead to higher borrowing costs for consumers and businesses. Furthermore, the study's findings are based on a high-rate environment, and the effectiveness of this strategy might diminish as yield-bearing stablecoins and tokenized money market funds become more prevalent.
