Bank lending could drop $325bn if the stablecoin market scales to $900bn, Kansas City Fed analysis finds
A a larger regulated stablecoin market would pull cash from bank deposits into T-bills, boosting Treasury demand while squeezing bank lending, according to new research from the Federal Reserve Bank of Kansas City
Published on 8 August, the analysis by economist Stefan Jacewitz models how funds moving from bank deposits into regulated dollar-stablecoins would be reallocated on balance sheets. If today’s asset mixes hold, every $1 that shifts from deposits to stablecoins would reduce bank lending by about 50 cents but raise net Treasury holdings by roughly 30 cents, with the remainder moving out of banks’ other assets.
Extrapolating that logic, if the stablecoin market were to expand from around $250bn today to $900bn, the paper estimates about $325bn less in bank loans, even as aggregate holdings of short-dated Treasuries rise.
The paper lands weeks after Congress passed the GENIUS Act of 2025, the first federal framework for payment stablecoins in the United States. The statute sets reserve, supervision and AML/BSA requirements for bank and non-bank issuers, and is expected to catalyse mainstream adoption.
‘Small today, but could scale fast’
Jacewitz stresses that stablecoin issuers are a modest share of the Treasury market at present. Using issuer disclosures and Treasury data, the bulletin notes that if all dollar-stablecoin issuers held a similar mix to a leading US issuer, they would hold around $125bn in T-bills—less than 2% of the roughly $6tn in bills outstanding, far below mutual funds and insurers. The paper also cites external estimates that put the total stablecoin market near $250bn today.
Still, growth projections vary widely. J.P. Morgan now forecasts the market only reaches $500bn by 2028, while Standard Chartered has suggested a path to $2tn by 2028, and Bernstein sees $4tn by 2035, a span of outcomes that would have very different implications for Treasury demand and bank intermediation.
Real-world issuer allocations already matter. The bulletin highlights issuer holdings skewed to short-dated government paper and repos; separate corporate disclosures show the largest offshore issuer reported about $127bn in US Treasuries as of Q2 2025, underscoring how the sector has become a notable marginal buyer of bills.
Why it matters for payments and banking
For payment companies, a clearer federal regime could accelerate merchant and consumer use of tokenised dollars, improving settlement speed and cross-border liquidity. But the funding shift away from bank deposits, if sustained, could tighten credit availability at the margin, particularly for smaller lenders that rely on stickier retail funding and originate a higher share of SME loans.
The Fed paper cautions that the net effect on Treasuries and loans depends on where the money comes from: if households sell Treasuries to buy stablecoins, the uplift in Treasury demand could be offset; if purchases come from deposits, lending capacity falls more visibly.
The key takeaway is that a larger stablecoin market is not a free lunch for market liquidity. It may deepen demand for short-term US government debt even as it mechanically reduces traditional bank credit, unless banks adjust balance-sheet composition or new channels of credit intermediation fill the gap.
Policymakers and firms rolling out stablecoin products will need to weigh those second-order effects as GENIUS implementation gets under way.
How the study got there
The analysis compares the current asset mix of US banks with that of leading dollar-stablecoin issuers. Banks hold roughly 50% of assets in loans and about 20% in Treasuries; major issuers hold about half of assets in Treasuries and related short-term government exposures.
Under those steady-state shares, a $1 move from deposits to stablecoins lowers loans by ~$0.50, lowers banks’ Treasury holdings by ~$0.20, and raises issuer Treasury holdings by ~$0.50—leaving a net +$0.30 in Treasuries system-wide. Data inputs include Treasury ownership statistics and issuer disclosures (for example, Circle’s reported T-bill share).
