Banks fear stablecoin ‘bank run,’ regulators see limited impact

The potential for stablecoins to initiate or exacerbate a traditional financial crisis remains a major point of contention between traditional banks and regulatory bodies. Banks express profound apprehension that a sudden loss of confidence or a failure in a major stablecoin issuer could trigger a classic ‘bank run,’ rapidly pulling tens of billions of dollars out of the banking system.

These concerns are rooted in the mechanics of stablecoin reserves. While many reserves are now held in highly liquid assets like US Treasury bills, a significant portion is also held as short-term deposits within commercial banks or invested through commercial paper. Should massive redemptions occur simultaneously—with stablecoin holders swapping tokens for fiat currency—the resulting liquidity drain could place severe stress on banks holding those reserves, potentially creating a contagion effect mirroring the 2008 financial instability, albeit on a smaller scale initially.

Regulators, however, maintain a more measured stance. Authorities such as the Federal Reserve and the Treasury Department acknowledge the inherent risks of unstable digital currencies but currently view the stablecoin market as insufficiently large to pose a systemic risk to the overall stability of the multi-trillion-dollar banking sector. Officials stress that current levels of stablecoin reserves, while large in absolute terms (estimated around $130 billion), represent a fraction of total commercial banking assets.

Furthermore, regulators note that transparency improvements and the shift toward higher-quality reserve assets (away from riskier corporate debt) have mitigated the immediate danger. The regulatory focus is now placed squarely on implementing comprehensive oversight, such as mandating 1:1 backing with liquid assets, to prevent future stablecoin failures from translating into traditional banking distress.

Source: Banks fear stablecoin ‘bank run,’ regulators see limited impact