Stablecoin Risks to Bank Deposits: Federal Reserve Raises Concerns

The Federal Reserve’s Community Depository Institutions Advisory Committee (CDIAC) has issued a warning regarding the potential impact of stablecoins on traditional banking. The CDIAC expressed concerns that non-bank stablecoins could weaken banks’ lending capabilities by causing deposit outflows, according to recent advisory reports. To prevent this disruption, they advocate for a unified regulatory framework that ensures consistency across bank and non-bank issuers of stablecoins. This is particularly important given the potential displacement of traditional bank deposits as seen in past market shifts, such as money market funds.