While stablecoin adoption could significantly affect European banks, including by shifting their funding base, the sector could also benefit from the technology by issuing its own tokens. Upcoming regulatory changes could alter the impact of stablecoins on banks, but we should not expect banks to surrender ground to fintech issuers without a fight
Stablecoins’ market capitalisation has grown significantly over the past two years. This growth has drawn widespread scrutiny, including from regulators, as it raises concerns about financial stability. Banks have also paid closer attention to the sector as it could represent both new risks and opportunities.
In this piece, we review the potential impact stablecoins could have on the European banking sector. This is especially relevant as multiple regulatory changes are expected in 2027. The EU is reviewing its Markets in Crypto-Assets Regulation (MiCAR), which could affect the estimated impact of stablecoins on the banking sector. Across the Atlantic, the regulatory landscape could also change next year. Discussions could result in the US allowing stablecoin issuers to directly distribute rewards, which would be a first.
Overall, while the future of stablecoins is still uncertain, they promise to remain in the spotlight in 2027. We show that despite multiple risks identified, European banks are unlikely to surrender ground to fintech stablecoin issuers without a fight.
What are stablecoins?
Stablecoins are crypto assets issued by private institutions that promise a stable nominal value in a given currency, commodity or pool of assets. Stablecoins are therefore not issued (or backed) by a government or central authority, but rather by a private institution and secured by segregated reserves.
The crypto asset is issued on distributed ledger technology (DLT), such as a blockchain, with three existing types of pegging mechanisms. For the sake of this analysis, we will focus on the main one: fiat-collateralised stablecoins. These crypto assets are backed 1:1 by reserves of cash or liquid assets.
In our overview publication on stablecoins (read more here), we review the sector’s recent development. We show that the total market capitalisation of stablecoins is surpassing $300bn globally, 99% of which consists of USD-pegged tokens. While still dwarfed by, for example, bank deposits, the rapid growth of the sector over the past five years (up by US$250bn) has drawn a lot of attention.
Selected stablecoins’ market capitalisation over time & share of all cryptocurrencies
Growing interest in stablecoins stems both from possible efficiency gains and the potential risks they pose. For stablecoins to reach the ‘broad adoption’ level of development, usage should extend beyond the niche crypto landscape and into the payments world. Several variables, including regulation, integration into payment systems and relative attractiveness compared with other payment systems, must be considered when determining the future growth of stablecoins. Read more on that in our piece Stablecoins 101: Uncertain growth but the stakes are high.
Despite their uncertain future, we believe it’s important to consider a scenario in which stablecoins become broadly adopted and systemically important as a means of payment. We identify multiple potential impacts of the crypto asset, including implications for emerging markets, interest rates, and monetary policy. In this piece, we will focus specifically on potential implications for the banking sector.
Stablecoins impact on banks: Threat, opportunity, or both?
In this section, we explore the potential implications of a broad use of stablecoins beyond the crypto landscape and into payment systems for banks. Despite US dollar stablecoins currently dominating the market, our main assumption is the widespread adoption of euro-denominated stablecoins in Europe.
While stablecoins are often presented as a challenge for the banking sector, we review here five potential implications, not all of which are negative for financial institutions.
A change in banks’ funding
To discuss the consequences of an uptake in stablecoin adoption on banks’ funding, two variables must be considered:
- Which assets are used to buy stablecoins
- What type of reserves are required by the regulation
If most users acquire stablecoins by redeeming liquid investments, the impact for financial institutions is expected to remain limited. However, if EU citizens and corporates adopt EUR-denominated stablecoins using bank deposits, the impact on financial institutions could be substantially more significant. In this scenario, banks could face a net drop in their retail and corporate deposits and/or a shift in the composition of their funding base.
Importantly, the nature of banks’ funding change depends on the second key variable: the regulation in place, more specifically the reserve regime. Indeed, widespread adoption of the crypto asset with deposits could result in a drop in banks’ funding. However, under the EU’s MiCAR, stablecoin issuers are required to hold part of their reserves as deposits with European commercial banks.
This implies that part of the amount flowing out of banks would ultimately come back to the sector as reserves from stablecoin issuers. Stablecoin adoption would therefore not translate into a net drop in funding for banks but rather in a shift in their funding base, where retail and corporate deposits would come back in wholesale form (more specifically as financial institution deposits).
Illustration of banks’ funding shift through stablecoins adoption using retail deposits*
This shift from retail to wholesale deposits is not without consequences. Wholesale deposits are known to be more volatile than retail ones and therefore represent a less stable funding source for banks. Additionally, capital requirements are higher for wholesale deposits, with, for example, higher run-off rates in the Liquidity Coverage Ratio (LCR) and lower available stable funding weights in the Net Stable Funding Ratio (NSFR). This reflects their greater volatility and related risks, making them more expensive for banks to hold.
Greater reliance on wholesale deposits could also create risk management challenges with more complex asset-liability matching. The ease with which deposits can be switched into stablecoins could increase financial institutions’ exposure to economic cycles.
To date, all main regulations in place ban stablecoin issuers from directly remunerating holders. Therefore, an environment in which interest rates are lowered (or even approach zero) would make holding stablecoins more attractive for users, as the difference with holding a deposit account is reduced. This could trigger sudden stablecoin adoption and a quick shift in banks’ funding.
The opposite scenario could also pose challenges for banks. As interest rates increase, the attractiveness of holding stablecoins diminishes. This could lead to sudden redemption requests from stablecoin holders, forcing issuers to liquidate reserves held at banks. As a result, financial institutions could face an outflow of stablecoin issuers’ deposits with a simultaneous inflow of retail deposits, adding volatility to their funding profiles.
In either case, these funding changes and substitution dynamics could make banks’ funding management more complex, costly and difficult to predict. However, as long as regulation prevents stablecoin issuers from directly remunerating holders, the effect of economic cycles is expected to remain muted, as stablecoins only become attractive as a deposit-like instrument in the case of a very low interest rate environment.
Additionally, the impact is likely to vary across the banking sector. Financial institutions with a large base of digitally active customers could face heightened pressure from widespread stablecoin adoption, as the barriers to switching from deposits to crypto assets are lower. Differences could also emerge between deposit categories. The impact is expected to be especially noticeable for accounts used as payment instruments, held by younger, digitally native customers who tend to be less relationship-driven or loyal to a specific bank and generally more willing to adopt new financial technologies.
While these points explore a scenario in which EUR-denominated stablecoins are widespread, it’s important to note that the impact would be different if USD-denominated stablecoins continue to dominate the market. In that case, a significant uptake would not translate into a funding shift for European banks but rather into a net outflow of deposits.
Indeed, these funds could flow to US stablecoin issuers, which would place the safe assets as required under US regulation. In other words, this would translate into a net outflow of European deposits towards the US economy. Aside from the monetary policy impact, European banks would be required to turn to alternative and more expensives
However, EU banks can also play a central role in the issuance and adoption of EUR-denominated stablecoins to counter that effect, as we discuss below.
Pressure on credit provision
In addition to changing banks’ funding base, broad stablecoin adoption could also negatively impact credit provision through several channels.
In a scenario where banks see a funding shift towards greater reliance on wholesale deposits, higher liquidity requirements may push them to take more conservative risk decisions. Research has shown that this could translate into banks steering their balance sheets away from illiquid and long-maturity loans to ensure they comply with the regulation, as well as reducing loan volumes, shortening maturities and increasing loan pricing. Overall, the European Central Bank has shown that deposit substitution could lead to a contraction of about 0.2% in lending to firms.
In addition to regulatory restrictions, wholesale deposits show different volatility patterns from those of retail deposits, mainly by being more reactive to market and macroeconomic changes. Greater reliance on such deposits would, once again, imply more complex risk management, pushing banks to hold additional liquidity buffers which could increase loan pricing.
Here, again, the impact could differ depending on the financial institution. European banks already showing high loan-to-deposit ratios, as well as those close to regulatory thresholds, could be more inclined to pass higher funding costs on through lending conditions in order to remain within regulatory thresholds.
Concentration and spillover risks
A growing discussion among regulators centres on concentration risks. As stablecoin issuers are required to hold part of their reserves as deposits with commercial banks, financial institutions could increasingly rely on their deposits for funding. As the proportion of banks’ funding coming from a small number of stablecoin issuers increases, so does concentration risk. This impact may become substantial if stablecoin adoption is both significant and concentrated among a handful of issuers.
Concentration could also arise if stablecoin issuers maintain relationships with only a limited number of banks, those with both the technical capabilities and willingness to engage with the sector. This could create pockets of concentration on both sides of the business, introducing new systemic risks for the banking sector.
Regulators across the globe have been increasingly attentive to the development of stablecoins. However, as concentration risks between banks and stablecoin issuers potentially emerge, they might also see the need to update their frameworks to ensure that such risks are correctly accounted for and captured in stress testing.
In addition, the current EU regulation also creates a direct link between the banking sector and crypto asset issuers, increasing spillover risks. In the event of a run on stablecoins, where the crypto asset suddenly loses value and users redeem their holdings, banks carrying the issuer’s reserves could face sudden and significant redemption requests. This could transmit a shock in the crypto sector to the broader financial system. The reverse is also true, with stablecoin issuers potentially affected by the failure of, or reputational damage to, the commercial bank they hold reserves with.
These concerns promise to remain relevant in 2027 as the EU is reviewing its MiCA Regulation. In May 2026, the European Commission opened a consultation to assess whether the MiCAR remains ‘fit for purpose’ following its initial implementation and recent market developments. In September, the ECB, alongside the 27 EU national central banks, submitted a recommendation to drop the requirement for stablecoin issuers to hold deposits at commercial banks.
Instead, the European System of Central Banks proposes implementing a minimum percentage of assets maturing within one to five working days to be held by the stablecoin issuer. This is said to lower both concentration and spillover risks. However, it could further accentuate the impact on banks’ funding by transforming a funding shift into a net deposit outflow.
Stablecoin and, more generally, crypto asset regulations are still emerging globally. Other regulators have highlighted the risks that links between stablecoins and the banking sector could create. The most striking example comes from the UK, where the Bank of England announced that it aims to ban stablecoin issuers from holding reserves at commercial banks, specifically to mitigate spillover risks in case of a shock. As stablecoin usage continues to rise, we can expect further changes to the regulatory landscape globally.
Competing through innovation
Despite the lack of international harmonisation, current regulations restrict stablecoin issuers from directly distributing remuneration to holders. This represents a significant regulatory advantage for the banking sector, as it limits the use of the crypto asset to transactional purposes. Remuneration distribution is therefore a central discussion point for stablecoin issuers, as removing the ban would allow them to position their product not only as a means of payment but also as a store of value. 2027 will be a crucial year as negotiations surrounding the US Clarity Act continue, potentially allowing stablecoin issuers to directly distribute rewards. While still far from an agreement, such a derogation would be a first globally and could open the door for similar changes in other jurisdictions. To counter this competition, banks could increase interest rates on their deposit accounts; however, this would have an impact on their profitability.
Therefore, the critical response to the rise of stablecoins lies instead in innovation. Indeed, crypto assets’ main advantage lies in their speed and limited costs, but banks are already showing they can innovate to compete. The European payment landscape is relatively cheap and fast despite being heavily fragmented. Some national payment systems exist, but a large share of transactions are processed through non-EU providers. Stablecoins’ promise to process payments (nearly) instantly and at extremely low costs, even across borders, could put pressure on existing systems. However, banks and payment system providers are already exploring ways to compete and experimenting with new digital transaction methods.
One example lies in tokenisation. Tokenised assets are digital representations of real-world assets on a distributed ledger infrastructure. A wide range of assets can be tokenised, but most banks are experimenting with deposit tokenisation. These could modernise payment and settlement infrastructures as well as intragroup liquidity management. They promise faster settlement, 24/7 transactions, programmability and lower operational frictions. Additionally, tokenised deposits offer regulatory advantages, as they remain fully within the existing supervisory framework. The underlying assets stay on the commercial banks’ balance sheet, preserving the same oversight and prudential standards applied to traditional deposits.
Banks’ competitive response could also extend to the regulatory field. The sector could push regulators to implement or maintain strict rules for the crypto asset sector to adequately reflect their risks. The US provides us with a striking example, as negotiations for the Clarity Act have been ongoing for months, with financial institutions pressing the importance of the ‘same risk, same regulation’ principle. While the final version of the US crypto landscape regulation is still to be agreed upon, US banks have played a central role in the negotiations by requesting proportionate safeguards surrounding the use of crypto assets.
Banks’ role in stablecoin adoption
While we have explored in depth the impact stablecoins could have on the banking sector upon broad adoption, it’s important to highlight that banks also play a role in the crypto asset’s adoption. A central variable in determining the future adoption and development of stablecoins is the degree to which they are integrated into existing payment systems. Greater integration not only increases accessibility for a broader range of customers but also improves the ease of use. This is especially relevant as stablecoins are still mainly used in the crypto landscape and by digitally savvy users.
Banks could therefore support the adoption of stablecoins for retail, day-to-day payments by integrating the asset into their digital systems or creating their own tokens, adding it as a new payment rail. Several examples in the EU and the US show the role banks can play in issuing their own stablecoins, defending their place in the payment landscape, even when it comes to new technologies. By issuing their own stablecoins, banks could also avoid losing client relationships and reduce the risk of becoming commodity providers for new payment issuers. Beyond this, banks are also exploring ways in which stablecoin integration could improve the customer experience while increasing fee revenues.
Looking specifically at Europe, banks’ stablecoin issuance could also play a significant role in the growth of EUR-denominated stablecoins. To date, USD-pegged stablecoins represent a striking 99% of all stablecoins in use. Thewidespread use of USD stablecoins in the EU would have significant monetary implications on top of those discussed here for the banking sector. Over the past few years, the European Union has increasingly focused on its ‘strategic autonomy’ agenda. Part of the discussion concerns the Union’s significant reliance on non-EU payment services, primarily US-based ones. The development of EUR-denominated stablecoins by local banks could provide an answer to these concerns, allowing for the development of a fast, cost-efficient European payment system directly competing with non-EU alternatives.
Potentially significant implications, but banks are unlikely to surrender ground to fintech stablecoin issuers
The broad adoption of stablecoins could have a significant impact on European banks. These range from a net drop in retail deposits or a shift towards wholesale funding to greater concentration and spillover risks, as well as an overall negative effect on credit provision and potentially banks’ business models.
While it remains important to continue exploring these risks as stablecoin use grows, it’s also crucial to highlight that the banking sector has tools at its disposal to not only counter them, but also benefit from the underlying technology. Indeed, one should not expect the “traditional” financial sector to simply stand aside as crypto assets continue to gain traction.
Despite significant growth over the past five years, stablecoins remain far from reaching widespread adoption. In our previous publication (read more here), we identified several factors that could shape their future. For banks, the key question is how to compete with the benefits stablecoins offer. The sector is already making substantial progress in instant-payment technologies and exploring digital alternatives (such as tokenisation) that could provide similar benefits with fewer regulatory concerns. These initiatives could significantly reduce stablecoins’ relative appeal. Furthermore, it’s essential to remember that banks still play a central role in payments and could also play a crucial role in the uptake of stablecoins by issuing their own tokens. This includes influencing which currency-pegged stablecoins gain traction and how they are integrated into the broader financial system.
Next year promises to deliver another wave of stablecoin-related news. In the EU, the MiCAR review could translate into a change in the reserve framework, a key issue when assessing the potential impact of stablecoins on banks. In the UK, 2027 will also be an important year as it will see the enforcement of its comprehensive stablecoin regime in October. The US must also still finalise its CLARITY Act, potentially allowing stablecoin issuers to directly distribute remuneration to holders. This would be a world first and a major shift in the regulatory treatment of the crypto asset, opening the door to similar changes in other countries.
While the upcoming regulatory changes could alter the potential impact of stablecoin adoption on the banking sector, we should not expect banks to surrender ground to fintech stablecoin issuers without a fight.
This publication has been prepared by ING solely for information purposes irrespective of a particular user’s means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument.
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Marine Leleux
Sector Strategist, Financials
Marine Leleux is a financial sector strategist based in Amsterdam. Her research focus ranges from banking sector regulation, ESG topics, digital currencies, as well as bank bond supply and…
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