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Banks and issuers debate tokenized deposits, Fed accounts and the continued role of banks
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Summary
Panelists debated tokenized deposits and whether stablecoin issuers should hold Fed payment accounts; a former regulator warned tokenized deposits at scale could pose supervisory risks while issuers and banks stressed banks' continued role in lending and intermediation.
Panelists debated whether tokenized deposits and broader stablecoin adoption reduce the need for banks, and what backstops might be necessary to preserve financial stability.
Tim Spence of Fifth Third argued banks provide essential intermediation, lending and maturity transformation that underpin credit formation and the broader economy. "They would drain deposits, and deposits are the more relevant factor here," he said in response to a question about stablecoins' impact on credit. He urged robust anti-circumvention rules to prevent stablecoins from effectively paying interest in ways that would disintermediate deposit-taking and lending.
Heath Tarbert, speaking with both issuer and former-regulator perspectives, said deposit-only Fed accounts could be useful as a stability backstop in stressed scenarios. He recalled clearinghouse experiences during the COVID crisis when firms had large cash balances and banks were reluctant to take deposits, and he suggested that a safe place to put cash without discount-window access could provide resilience in times of market stress.
Panelists emphasized that stablecoins are primarily a payments mechanism and that banks will retain roles where balance-sheet intermediation and credit provision are required. Fernando Perez added the flow-through value of banks matters for small-business lending and wider credit intermediation when deposits are reused by banks to extend loans.
On tokenized deposits specifically, Heath warned that immediate, 24/7 tokenization at thousands of community banks could raise supervisory concerns and argued more public-policy work is needed before broad tokenization of deposit liabilities.
The panel did not reach any formal policy conclusion but underscored three consistent points: (1) banks provide essential credit intermediation that stablecoins do not currently replace; (2) deposit-only or special-purpose Fed accounts were discussed as a potential stability backstop in specific circumstances; and (3) tokenized deposits raise novel supervisory questions that require further public-policy analysis.
