Federal Reserve Committee Raises Concerns Over Stablecoins' Impact on Banking

According to PANews, recent meeting records from April 10 reveal that the Federal Reserve's Community Depository Institutions Advisory Council (CDIAC) has expressed concerns regarding stablecoins issued by non-bank entities. The committee believes these stablecoins could accelerate the outflow of bank deposits and weaken community banks' ability to provide loans to small businesses and households. The committee compared stablecoins to the impact of money market funds on the banking industry in the late 20th century, noting their similarity to central bank digital currencies (CBDCs) in potentially diverting the deposit base from the banking system. It emphasized that current stablecoins are not subject to equivalent liquidity regulatory requirements, which could lead banks to reduce their credit offerings, particularly affecting small borrowers reliant on local bank services. The committee recommended incorporating stablecoins into the financial stability regulatory framework, advocating for unified standards for both bank and non-bank issuing institutions to prevent regulatory arbitrage. This stance aligns with Federal Reserve Chair Jerome Powell's remarks on April 16, where he acknowledged the broad appeal of stablecoins but stressed the need for an appropriate regulatory system.