---
title: "Stablecoins vs banks: reserves, redemptions and risk"
author: "Naomi Voss"
datePublished: 2026-07-20T04:10:00.000Z
canonical: "https://scramnews.com/post/00tig5c0qort0/stablecoins-vs-banks-reserves-redemptions-risk"
---

Start with the balance sheet. A customer sends dollars to a stablecoin issuer, receives a digital token and expects to redeem it for one dollar later. [Brookings analysts Nellie Liang and William C. Dudley](https://www.brookings.edu/articles/what-are-the-differences-between-payment-stablecoins-and-tokenized-bank-deposits/) call payment stablecoins substitutes for cash or checking accounts. In 2026, that comparison is not academic: stablecoin rules, bank-charter fights and tokenized-deposit pilots are all testing when digital money becomes close enough to a bank liability to merit bank-style rules.

[BIS economists Rodney Garratt and Hyun Song Shin](https://www.bis.org/publ/bisbull73.pdf) put the issue another way. Their focus is the singleness of money, the principle that a dollar should settle at par no matter which private firm moves it. Even with safe assets behind them, bearer-style stablecoins can sit outside that hierarchy because holders depend on an issuer, market plumbing and redemption queues rather than the banking system’s full safety net.

For policy purposes, stablecoins resemble a narrow slice of a bank balance sheet, not a full-service bank. [The Block’s explainer](https://www.theblock.co/learn/408854/stablecoins-vs-traditional-banking?utm_source=rss&utm_medium=rss) puts the market at roughly $300 billion, with USDT and USDC making up close to 90 per cent. Issuers take in dollars and hold the proceeds in reserves, often cash or short-dated government securities. Lending is usually absent. So are insured deposits and routine access to a central bank backstop.

> “A stablecoin issuer typically holds reserves against every stablecoin, keeps the interest for itself, and has no government backstop.”
>
> Source: The Block Research, The Block

That business model sets up the policy fight. The practical questions are who controls the reserves, how quickly holders can redeem, whether yield can be passed through and what happens when confidence thins out.

## What stablecoins share with banks

Some overlap with banking is real. A reserve-backed stablecoin is a token meant to keep a fixed value, usually one dollar, because the issuer says matching assets stand behind it. Bank deposits are also private claims that customers expect to redeem at par. Both models place one institution in the middle of settlement, liquidity and trust.

![A smartphone beside euro banknotes illustrating digital money layered on top of traditional cash.](https://images.pexels.com/photos/10149289/pexels-photo-10149289.jpeg?auto=compress&cs=tinysrgb&dpr=2&h=650&w=940)

The narrow-bank analogy works up to a point. Money comes in, safe assets sit on the other side, and the operator earns spread income from the reserve portfolio. Once lending appears, the comparison starts to fray. Commercial banks run a fractional-reserve model, turning deposits into loans and other assets instead of keeping every dollar in cash-like instruments.

Liang and Dudley describe payment stablecoins as transaction money rather than investment products.

> “They are substitutes for cash or checking accounts.”
>
> Source: Nellie Liang and William C. Dudley, Brookings

For users, that distinction can feel technical until a payment fails or a token loses its peg. Stablecoins can act like checking-account money on crypto exchanges or on-chain settlement rails. A payment function, however, does not make them bank deposits.

## Where the differences matter

Stress reveals the gap. [FDIC deposit insurance](https://www.fdic.gov/resources/deposit-insurance/understanding-deposit-insurance) protects up to $250,000 per depositor, per insured bank and ownership category. Stablecoin holders do not get that statutory protection. Instead, they hold a redemption claim against an issuer or issuer structure, with strength that depends on reserve quality, custody, legal terms and the issuer’s capacity to process exits.

![A hand holding dollars and a mobile phone, illustrating the jump from digital claims back into cash.](https://images.pexels.com/photos/163069/mobile-phone-money-banknotes-us-dollars-163069.jpeg?auto=compress&cs=tinysrgb&dpr=2&h=650&w=940)

Redemption rules therefore keep returning to the centre of the debate. A stablecoin that trades steadily at one dollar still rests on a credible promise that coins can be turned back into dollars quickly and at par. If redemption windows widen, counterparties pull back or reserve assets prove less liquid than advertised, the token can trade below par without a classic bank run. This is the settlement-risk concern behind the BIS warning on singleness of money.

The proposed [FDIC rule to implement the GENIUS Act](https://www.fdic.gov/news/financial-institution-letters/2026/notice-proposed-rulemaking-establish-genius-act) tries to close part of that gap. It points to 1:1 reserve backing, redemption standards and limits on activities. The wider debate has also asked whether issuers should be barred from paying yield directly to holders. Put differently, the fight has moved past crypto branding and into balance-sheet design: should these liabilities be built like stored-value payment instruments rather than interest-bearing bank accounts?

Rulemaking will decide much of the answer. Brookings and The Block both cite an 18-month window, leaving many operating details unwritten. Banks have argued, in related industry fights reported by [The Block](https://www.theblock.co/post/406231/senate-races-advance-crypto-legislation-housing-bill-turmoil-threatens-timeline?utm_source=rss&utm_medium=rss), that generous stablecoin rewards could draw funds from insured deposits without bringing the same supervisory burden.

## Why tokenized deposits are the banking answer

Tokenized deposits are the banking system’s answer to that risk. A tokenized deposit is still a bank deposit, issued by a bank and kept inside the regulated perimeter, but represented on a blockchain or another programmable ledger. Holders have a claim on the bank rather than on a nonbank issuer, so deposit insurance, prudential supervision and lender-of-last-resort access can still stand behind the product.

Large-value settlement is where banks and policy analysts often prefer that model. The technology can offer faster movement and easier programmability. The legal architecture stays familiar. Brookings argues that tokenized deposits preserve bank intermediation. The BIS view is similar on the monetary hierarchy: keeping the claim inside the banking system better protects one-to-one convertibility than creating parallel dollar claims.

Recent charter fights show how close the models are getting. [Circle’s final OCC approval for a national trust bank](https://www.theblock.co/post/407876/stablecoin-firm-circle-wins-final-occ-approval-to-open-national-trust-bank?utm_source=rss&utm_medium=rss) and [Sony Bank’s conditional OCC approval for a US trust bank](https://www.theblock.co/post/407670/sony-bank-conditional-occ-approval?utm_source=rss&utm_medium=rss) show crypto and banking firms moving toward the regulated perimeter. A national trust bank, however, is not the same as an FDIC-insured commercial bank. Trust structures can add supervision and governance; they do not automatically recreate deposit insurance or a full bank funding model.

Stablecoin issuers, then, are not simply banks with crypto branding. They are closer to reserve managers that issue payment claims, while banks issue deposits, make loans and operate with a deeper public backstop. The next signal is whether final GENIUS-era rules push more issuers toward trust-bank structures, or whether tokenized deposits become the cleaner way to move dollars on-chain without rebuilding banking around private tokens.