Stablecoins Will Make Your Next Loan More Expensive — And the Banks Are Doing It to Themselves

In the quiet hours of an otherwise unremarkable Thursday, the Bank for International Settlements’ general manager Pablo Hernández de Cos stood in a Zurich auditorium and warned that stablecoins could make borrowing more expensive. Not because they are volatile. Because they are stable — and that stability is threatening the one product that keeps the banking industry alive: the transaction account. The stablecoin market now holds roughly $304 billion, including $183 billion in Tether and $74 billion in USDC. Federal Reserve researchers increasingly describe these tokens as potential competitors to traditional transaction accounts. That number is not trivial. It is larger than the combined lending capacity of a mid-tier European sovereign. And it is growing. I’ve been chasing narratives since before the ICO bubble popped. In 2017, I read 500 whitepapers and noticed that the projects with the strongest plotlines outperformed the technically superior ones by 300%. It was a sociological discovery, not a financial one. The story is the asset. But from the ashes of 2017 to the fluidity of DeFi, I’ve learned that every story eventually meets its balance sheet. And the stablecoin story just hit the accounting chapter. For years, banks waved off stablecoins as “crypto infrastructure” — a parallel universe that would either die or stay contained. Arthur Firstov, chief business officer at Mercuryo, puts the shift in stark terms: “Stablecoins stopped being a crypto product and became a payments product. For years banks could wave it off as ‘crypto infrastructure’ – that’s a much harder line to hold when stablecoins are being used for payments, treasury, cross-border settlement, cards, merchant payouts, and institutional settlement. At that point they’re competing directly with one of the most valuable products a bank has: the transaction account.” A Federal Reserve survey from September 2025 confirms the panic: roughly half of respondents were prioritizing growth in at least one stablecoin or digital-asset area over the following three years. Banks are not just watching the invasion; they are becoming allies in it. They want a piece of the $304 billion pie. But they are cutting the pie blindfolded. Not all stablecoins are created equal. J.P. Morgan’s JPM Coin is a tokenized deposit. Société Générale-FORGE’s CoinVertible is a MiCA-regulated stablecoin backed by segregated collateral. They look similar. They are not. Nitin Gaur, head of institutions at Nethermind, lays out the legal chasm: “The interesting question stopped being whether a bank can issue and became what a bank is issuing. A tokenized deposit and a bank-issued stablecoin are two different liabilities with different legal character, different capital treatment, different insurance status and different settlement properties.” Let’s follow the money. Under the US GENIUS Act, a payment stablecoin must maintain at least one-to-one backing with eligible reserves: cash or short-dated Treasuries. The US Treasury proposed implementation rules on August 17. That means the bank cannot lend against those reserves. It is a matched, non-lendable pool — a vault, not a funding source. When a corporate treasurer moves $100 million from a demand deposit into the bank’s own coin, something profound happens to the bank’s funding model. Gaur explains: “A stablecoin issued under a GENIUS pathway is not a deposit. It is a payment instrument backed by segregated reserves the issuer cannot lend against. When a treasurer moves a hundred million from a demand deposit into the bank’s own coin, the bank has converted a funding source into a matched, non-lendable reserve pool.” This is the quiet heist. The bank loses a cheap, sticky deposit. It gains a reserve that earns only the Treasury yield while bearing the operational cost of running a blockchain. The loan book shrinks. To compensate, the bank raises rates on everything else. But the story doesn’t end there. The reserves backing stablecoins don’t vanish; they end up back at banks. If they are deposited as callable reserves, they can provide some funding. But they are more concentrated and quicker to leave. Adrian Wall, managing director of the Digital Sovereignty Alliance, frames the systemic risk: “If stablecoin adoption ultimately shifts funding away from bank deposits rather than recycling those funds back into the banking system, banks could face higher funding costs and potentially less capacity to extend credit.” I’ve audited too many post-mortems to trust a unicorn’s smile. When Terra/Luna collapsed, the on-chain forensics showed the funding mechanics silently breaking before the story caught up. The same fragility is hiding in these reserve pools. A $100 million Treasury-backed reserve can become a $95 million problem if the issuer misjudges the duration, the custodian, or the holiday weekend. Real-world usage is no longer hypothetical. In July, Citi reported a dollar payment from London to Thailand over a US holiday weekend, using its tokenized-deposit service alongside round-the-clock clearing. Western Union launched USDPT in May, with Anchorage Digital Bank issuing the stablecoin on Solana. These are not testnets. They are ordinary payment flows that used to require a correspondent bank network. The scale varies wildly. J.P. Morgan reports around $7 billion in daily activity across Kinexys products. CoinVertible reported €156.6 million of euro tokens and $12.55 million of dollar tokens outstanding on August 31. Different metrics — volume versus supply — so you cannot crown a winner. But the direction is unstoppable. The narrative is the architecture, but the balance sheet is the foundation. And right now, the foundation is shifting. Here’s the part Wall is pointing at: a bank that issues a stablecoin makes a deliberate choice to convert its cheapest funding into an unproductive reserve. To maintain the same lending capacity, it must replace those deposits with wholesale funding, which costs more. The bank passes those costs to borrowers. Whether through credit spreads or tighter underwriting, the cost of money rises. If you are a homeowner, a startup founder, or a small business owner, your next credit line just got more expensive because someone moved money from a checking account into a token. Even in the optimistic scenario where reserves are recycled back into the banking system, the new deposits are no longer “sticky” in the way a traditional demand deposit is. They are wholesale, concentrated, and prone to panic. In a stress event, those reserves will exit faster than a short attack on a stablecoin collateralized by a QR code. There are no QR codes here, just paper: Term SOFR, repo agreements, and the residual trust that a bank will exist tomorrow. And then there’s the interoperability problem. As more banks enter the stablecoin market, each institution risks launching its own siloed coin. Users will end up exchanging one bank’s token for another, hoping conversion at face value holds during a liquidity crunch. This is the recipe for a fractured payments patchwork — the opposite of the “global, permissionless, seamless” promise. Europe may offer an escape. Qivalis has assembled 37 banks across 15 countries around a planned euro stablecoin. It targets a launch in the second half of 2026, subject to regulatory authorization. The cooperative model is explicit. Ernesto Olmedo Pereira, head of strategy and DeFi at Qivalis, says: “If every bank launches its own token, you get dozens of thin, incompatible pools instead of one deep, liquid euro instrument. Qivalis, an independent company backed by 37 banks, exists precisely because the banks behind it decided to build one shared, interoperable euro rail together rather than compete with 37 separate ones.” That’s a fascinating counter-narrative. A shared coin is a shared liability structure. It can carry payments without presenting each bank with the same balance sheet risk. It preserves the utility of stablecoins without the fragmentation. But it also faces a difficult test. Banks will compete through services wrapped around the shared coin: foreign exchange, corporate lending, treasury management. If those services can justify the higher cost of funding, the model works. If not, you will see a race to the bottom. The contrarian angle is uncomfortable. Perhaps the real threat to banks isn’t stablecoins; it’s bank-issued stablecoins. The institutions are voluntarily surrendering their lending capacity in exchange for a seat at a payments table that is increasingly commoditized. They are becoming toll operators on a road they used to own. The credit risk isn’t disappearing — it’s migrating. It will resurface in shadow banks, private credit funds, or on the balance sheets of the few lenders that still accept the dirty work of maturity transformation. I’ve watched this pattern before. In 2020, the DeFi Summer liquidity wars made every yield farmer feel like a market maker. Six months later, the governance tokens were worth less than the gas fees spent to mine them. The difference this time is that the actors are banks, not anonymous addresses. And the prize is not yield; it’s the system itself. Here is my thesis: borrowing costs will rise not because stablecoins are evil, but because they alter the composition of bank liabilities. A banking system funded by sticky core deposits is a stable system. A banking system funded by flighty, segregated reserves is a system that will price itself into irrelevance. Someone must take credit risk. If the banks won’t, someone else will — and they will demand higher compensation. The question every borrower should be asking is not “What’s the yield?” but “Who is still lending, and how expensive is their own money?” Until someone rebuilds the trust that deposits provide, the answer will be: more expensive than you hope. From the ashes of 2017 to the fluidity of DeFi, we have learned that money is a story. The next chapter is about who gets to lend it.