Stablecoins may not drain deposits so much as relocate them to the biggest banks

American Banker put the question banks keep asking to a set of academics and practitioners: are stablecoins coming for deposits? The answer that came back is narrower and more useful than the headline threat, because it separates money leaving a bank from money leaving the banking system [s1c1].

Start with the plumbing. Itay Goldstein, a finance professor at Wharton, describes two branches: an issuer must park customer money in a safe asset, and if that asset is a bank deposit the funding stays inside the banking system, while reserves invested directly in Treasuries do not have to pass through a bank at all [s1c2]. Goldstein calls the second branch what the industry calls it, disintermediation, meaning less money moving through banks [s1c3]. That framing is worth holding onto, because most commentary treats the two branches as one event.

The distributional point is where the consequence sits. Todd Phillips, a director at Klaros Group and a former FDIC official, told American Banker that large-scale migration into stablecoins could be consequential for community banks specifically, because token issuers are more likely to place reserves at big banks [s1c4]. His example is blunt: a giant issuer such as Circle is not putting reserves into community banks, it is going to use J.P. Morgan Chase or a comparably large institution [s1c5]. Phillips adds that Treasury market mechanics reinforce the same concentration, since issuers buying from primary dealers are dealing with counterparties who bank at the giant banks [s1c6]. Combine the two branches with that observation and the clean exit is smaller than it looks: even the Treasuries route partly loops back into large bank balance sheets ^[1].

So stablecoin growth does not need to shrink total deposits to matter. American Banker's reporting makes the point directly: deposits could move from smaller banks toward larger institutions as issuers establish reserve relationships with the banks best equipped to hold them, and that is a seismic outcome for the industry even with aggregate deposits flat [s1c7].

Dave Scola, chief product officer and U.S. chief executive at Form3, describes the benign case for a large bank that is itself an issuer: the liability shifts from a straightforward fiat deposit to a deposit collateralising a stablecoin, and the bank can still use it the same way on the asset side [s1c8]. He calls that the ideal scenario [s1c8]. Ideal is doing some work there. It is ideal for the institution that owns both sides of the swap, and irrelevant to the bank whose loan book was funded by the deposit that left.

Scola also concedes the less comfortable version. Reserves could exit the banking industry altogether, and the size of the impact depends on behaviour: if balances sit with issuers and act like traditional sticky deposits the effect is relatively modest, while balances that move from one stablecoin to another are a different matter [s1c9].

What to watch. Adoption is still not the everyday case, since stablecoins have yet to gain broad traction as a payment method, and American Banker's forward look puts the near-term consumer opening in cross-border payments [s1c10][s1c11]. Watch where new reserves actually land as rules firm up [s1c1]: deposits at a handful of large banks, or Treasuries. Watch which large banks become issuers themselves, since that is the configuration Scola describes as benign for the holder [s1c8]. And watch small bank funding, which is the balance sheet Phillips identifies as exposed [s1c4].