The issue with stablecoins is they create large pools of assets which need to be invested in liquid securities (think t-bills, commercial paper, deposits). And outflows from a given stablecoin could drive a run on the deposits of an otherwise sound bank.
Yeah we saw… not this but a preview of what this could look like when we learned that USDC was one of the biggest accounts at SVB at $3.3B, which was nearly 10% of Circle’s deposits
This NBER study works through the liquidity problems at the heart of the stablecoin model. www.nber.org/papers/w33882
Especially since the GENIUS act put STABLECOINS ahead of depositor claims.
The assumption is that if they're only invested in t-bills, they won't run.
if they're only invested in t-bills then it's a non-issue for banks anyways
It's quite an issue if they cannibalize deposits.
Sorry I meant non-issue for run risk. Deposit cannibalization is an issue but that's a challenge to the income statement not solvency IMO.
Well, it depends on how they're regulated in the end. If stablecoins issued by institutions like JPM and others are regulated to not hold more than a certain percentage of assets for that purpose, I don’t think there’d be an issue.
Stable coins would need the discount window lol.
why is this risk different from the risk of outflows from money market funds that are invested in t-bills, CP, and deposits?
lack of regulation basically. MMMFs have all sorts of requirements around run risk.
MMMFs... the extra "M" is for extra regulations requiring more assets classified as DLA/WLA
Deprecate stablecoins and market tokenized MMF in their place then, I suppose
MMMF = money market mutual fund
I sincerely do not understand the appeal to offering a stablecoin other than “other banks are doing it”
Don’t they collect transaction fees?
Like it’s riskier than simple custodianship idgi