Two recently published papers — a FEDS Note from Federal Reserve Board economists and an advisory piece from Crowe LLP — address the competitive implications of stablecoins for banks, reaching broadly compatible conclusions through different analytical lenses. Both papers agree that banks’ position as the bridge between fiat and digital rails is an enduring advantage. The principal tension between them lies in timing: the Fed note draws reassurance from historical precedent, while Crowe implicitly questions whether prior adaptation timelines — measured in years or decades — remain available given stablecoins’ distribution characteristics and programmatic scalability.
Banks in the Age of Stablecoins: Lessons from Their Historical Responses to Financial Innovations (FRB)
Federal Reserve Board (FRB) economists argue, in a May 2026 FEDS Note, that banks historically respond to disintermediation threats through regulatory advocacy, product innovation, and strategic partnership rather than passive retreat, and apply that framework to stablecoins. Drawing on the money market fund (MMF) episode of the 1970s–80s and the PayPal/Venmo experience, the authors show that banks eventually recaptured market share despite initial disadvantage. However, stablecoins present a compounded challenge, combining MMFs’ regulatory-arbitrage dynamic with payment platforms’ technological differentiation, while introducing faster potential run dynamics via 24/7 blockchain settlement. Whether aggregate deposit levels contract materially depends on how stablecoin issuers structure their reserves. [FRB]
The Impact of Stablecoins: Considerations for BaaS Banks (Crowe LLP)
Crowe LLP consultants argue that stablecoins pose a structural challenge to banking-as-a-service (BaaS) banks that extends beyond payments into deposit composition, treasury workflows, and customer relationships. With wallet-based infrastructure stablecoins consolidate functions previously distributed across multiple intermediaries. For BaaS banks, the disintermediation risk is less about individual payment flows than about becoming peripheral to the liquidity and settlement environments where fintech partnerships operate. The piece offers a tiered decision framework — monitor, prepare, or act — calibrated to fee-income exposure and partner behavior. However, whether stablecoin adoption remains confined to discrete use cases or becomes foundational infrastructure remains an unresolved question. [Crowe LLP]
FYI I produce a monthly digest of digital fiat currency (DFC) developments exclusively for the official sector (e.g., central banks, ministries of finance and international financial institution (e.g., the BIS, IMF, OECD, World Bank)) plus academics and firms that are active in the DFC space (commercial banks, technology providers, consultants, etc.). (DFCs include central bank digital currency (CBDC), stablecoins and tokenized deposits.) It goes out via email on the first business day of every month, and if you’re interested in being on the mailing list, please email me at john@kiffmeister.com.
