The End of Idle Money

Why programmable money and atomic settlement threatens bank funding models more than stablecoins do

Mar 29, 2026

The GENIUS Act created a new legal category of money. A payment stablecoin is a bearer instrument, a digital dollar you hold directly, not a claim on someone else’s ledger. It’s closer to how cash works than how deposits work. The Act prohibits issuers from paying interest or yield to holders, which means stablecoins are a payments instrument, not an investment product.

That distinction matters, because the banking industry’s current fight is about what happens around the edges of it. The ABA and all 52 state bankers associations have written to Congress arguing that exchanges like Coinbase are circumventing the spirit of the law by paying yield on stablecoin balances held on their platforms. The issuers aren’t paying it, the exchanges are. ICBA is pushing the same line, framing it explicitly as a deposit protection issue, community banks make 60% of US small business loans under $1 million, and that lending capacity depends on stable deposit funding. The banking lobby wants the loophole closed, and they may well succeed.

I just don’t think it solves the problem. Even if you close every yield loophole, the structural threat to bank funding models isn’t yield on stablecoins, it’s the elimination of the friction that makes deposits cheap in the first place.

That’s what this article is about.

The settlement friction subsidy

Here’s how bank funding actually works, stripped to its essentials. Cash sits in accounts. It moves slowly, during business hours, through batch queues, between payment cycles. That slowness isn’t a bug. For banks, it’s a feature. Every hour money sits idle in a non-interest bearing account, the bank earns a subsidy. It funds loans at zero cost with capital that’s going nowhere.

This is the foundation of net interest margin.

At the end of 2021, non-interest bearing deposits accounted for roughly 30% of all bank deposits in the US. That’s nearly a third of total funding that costs the bank nothing. Since then, the share has fallen to around 23% as depositors shifted to interest-bearing alternatives in a higher rate environment. The industry’s NIM recovered to 3.39% in Q4 2025, the highest since 2019, but that recovery was driven primarily by funding costs falling faster than asset yields after the Fed’s rate cuts. The underlying deposit mix has shifted permanently.

And that shift happened before programmable settlement entered the picture.

The 1980s rhyme

We’ve seen a version of this before. In the late 1970s, Regulation Q capped the interest banks could pay on savings accounts at 5.25%, while market rates were north of 12%. Money market mutual funds exploited that gap. By 1980, MMFs held $77 billion in assets, about 3.5% of total bank and thrift deposits. The banking industry fought back, lobbied for the Garn-St. Germain Act in 1982, got permission to offer Money Market Deposit Accounts, and eventually saw Reg Q eliminated entirely by 1986.

Banks adapted. Deposits didn’t disappear. Congress gave banks permission to offer Money Market Deposit Accounts, and the industry competed aggressively for funding. Some didn’t survive the transition, the S&L crisis wiped out over a thousand institutions, many of which couldn’t absorb the higher cost of deposits. The survivors consolidated, expanded into new lending categories, and eventually rebuilt margins. But MMFs didn’t vanish when the regulatory gap closed. They kept growing, because they had structural cost advantages that survived deregulation. Today they hold over $6 trillion.

The lesson from the 1980s isn’t that disintermediation kills banks. It doesn’t. Banks are resilient and adaptive. The lesson is that once capital learns it has options, it doesn’t forget. The cost of retaining deposits went up permanently, and the industry had to restructure around that reality. Some banks thrived. Many didn’t.

I think stablecoins and programmable settlement are about to replay that dynamic but at a different layer of the stack.

What programmable settlement actually changes

The MMF fight was about yield. Depositors wanted better returns, and they found them outside the banking system. The stablecoin fight looks similar on the surface, which is why the banking lobby is focused on closing yield loopholes at exchanges.

But the deeper shift isn’t about yield. It’s about velocity.

When a corporate treasurer can move capital in minutes rather than days, the economic character of a deposit changes. Capital that used to sit in a non-interest bearing account waiting for a batch cycle can now rotate intraday, into a tokenized Treasury, a tokenized money market fund, a short-duration yield instrument, and return to the payment rail before the next obligation clears.

This isn’t theoretical. BlackRock’s BUIDL fund, a tokenized money market instrument, surpassed $2.5 billion in AUM within two years of launching, making it one of the fastest growing institutional products in recent memory. The broader tokenized US Treasury market grew from $3.9 billion at the start of 2025 to over $9 billion by November. That’s a 127% increase in under a year. WisdomTree’s tokenized money market fund grew from $112 million to $730 million over the same period, and in February 2026 received first of its kind SEC exemptive relief to trade 24/7 against USDC with instant blockchain settlement.

The infrastructure for intraday capital rotation isn’t coming. It’s here.

And the stablecoin market itself, now approaching $300 billion in market cap, with a record $33 trillion in transfer volume in 2025 alone, provides the settlement layer that makes this rotation frictionless.

How this actually works

To understand the threat, you need to understand the plumbing.

Banks already offer sweep accounts, typically end of day processes that move excess cash into money market funds and bring it back the next morning. Treasurers have used them for decades. But sweeps are bank managed, batch processed, and limited to a narrow set of bank affiliated instruments. The bank controls where the money goes, and it comes back automatically. The deposit relationship stays intact.

Tokenized money market funds change this in ways that matter.

Take BlackRock’s BUIDL fund, the largest tokenized money market instrument. An institutional investor can subscribe by wiring dollars to the fund. They receive BUIDL tokens representing shares in a portfolio of short term US Treasuries yielding 4-5%. When they need cash, they don’t wait for a T+1 redemption. They send their BUIDL tokens to a Circle smart contract that atomically, in the same transaction, returns the equivalent value in USDC. That happens 24/7, in seconds, on a blockchain. Circle acts as the liquidity bridge, fronting its own USDC reserves and redeeming the underlying Treasuries through traditional settlement channels afterwards.

This is the critical mechanism. The BIS flagged it explicitly in its November 2025 bulletin: instant stablecoin redemption facilities create “the potential for shocks to propagate between the TMMF and stablecoin markets,” but they also make tokenized funds functionally as liquid as cash from the investor’s perspective.

Now think about what this means for a corporate treasurer sitting on $50 million in a non-interest bearing operating account.

Today, most of that money sits idle between payment cycles. The treasurer tolerates this because the alternatives are slow as selling a traditional money market fund takes T+1, wiring money takes hours, and the effort of active treasury management isn’t worth it for intraday time horizons. The bank funds loans against that idle balance at zero cost.

Now give that treasurer access to BUIDL, or WisdomTree’s tokenized MMF, or any of the growing number of tokenized yield instruments with instant stablecoin redemption. The math changes. They keep $10 million in the bank for immediate obligations. The other $40 million goes into tokenized Treasuries earning 4-5%.

That $40 million is no longer a deposit. It’s gone from the bank’s balance sheet. Genuinely gone.

When the treasurer needs cash, say for a supplier payment, a payroll run, a margin call then they redeem BUIDL to USDC in seconds and either convert to fiat or use the stablecoin directly. The money might return to the original bank. Or it might go to a different bank. Or it might stay as USDC and never touch a bank account at all.

This isn’t a sweep account. In a sweep, the bank manages the process, chooses the instruments, and the money comes home every morning. In this model, the treasurer controls the flow. The bank is bypassed entirely during the yield-earning phase. And the instant redemption facility means there’s no liquidity penalty for keeping capital outside the banking system, you can get it back in the time it takes to confirm a blockchain transaction.

The BIS put it plainly:

tokenization might cause bank disintermediation by displacing deposits if tokenized shares pay higher yields than deposits, and/or earn a higher convenience yield than deposits

What’s new is that tokenized MMFs now offer both, higher yield and instant liquidity. The convenience gap that kept money in bank accounts is closing.

This is why the exchange yield debate misses the structural point. Close the loophole, ban exchanges from paying interest on stablecoin balances but it doesn’t change this dynamic. The yield isn’t coming from the stablecoin. It’s coming from tokenized Treasuries that the treasurer can enter and exit in seconds, using stablecoins as the on-ramp and off-ramp. No exchange yield required. No stablecoin interest required. Just fast enough settlement that capital doesn’t need to be idle.

Treasury management shifts from a liquidity problem to a return optimisation problem.

Who’s already moving

A 2026 Ripple survey found that 72% of finance leaders now consider digital assets essential to competitiveness — not optional, not experimental, essential. More telling: 74% of those finance leaders described stablecoins as tools for cash flow management, not just payments. That’s the language of treasurers, not crypto enthusiasts.

The EY-Parthenon survey from mid-2025 found that 13% of financial institutions and corporates were already using stablecoins, with 54% of non-users expecting to adopt within 6 to 12 months. Even accounting for survey optimism, that’s a steep adoption curve.

And this isn’t just a large-cap phenomenon. Community banks and credit unions are being approached by infrastructure providers offering plug and play stablecoin capabilities through existing core banking platforms. The middleware layer is maturing fast.

The corporate treasurers who figure this out first will be the best, most sophisticated clients at every bank. They’re the ones managing the largest operating balances, exactly the deposits banks can least afford to see become transient.

The NIM compression we should be modeling

Most bank analysts model NIM risk as a function of the rate environment. If rates fall, funding costs drop but so do asset yields. If rates rise, there’s a lag effect. The models are sophisticated and well understood.

What they don’t model is a change in the behavior of deposits at a given rate level.

If 10-15% of non-interest bearing deposits, which is currently around 23% of total deposits at US banks, start behaving like intraday capital that rotates through yield instruments, the effective cost of that funding goes from zero to something. Not because the bank is paying interest on those deposits, but because the capital is no longer reliably idle. The bank can no longer count on it for stable funding.

That changes liquidity ratios. It changes the assumptions underpinning loan pricing. It changes the economics of maturity transformation.

And unlike the MMF shift of the 1980s, which played out over a decade, programmable settlement compresses the timeline. The infrastructure is already live. The regulatory framework is being finalized. The corporate treasurers are paying attention.

The price of keeping deposits

Here’s where I think the conversation needs to land, and it’s simpler and harder than any technology debate.

Banks exist to take deposits and make loans. That’s the engine of credit creation. It’s how small businesses get funded, how mortgages get written, how the economy grows. ICBA’s point about community banks making 60% of US small business loans under $1 million isn’t lobbying rhetoric, it’s a description of how the real economy works. Those loans are funded by deposits. Cheap, stable, idle deposits.

When a corporate treasurer can earn 4-5% in a tokenized Treasury and get back to cash in seconds, a non-interest bearing deposit account isn’t a convenience anymore. It’s a cost. The treasurer knows exactly what they’re giving up by leaving money in the bank, and they can now act on that knowledge in real time.

So what does the bank do? It pays.

Not because of a regulation. Not because of a rate cycle. Because the alternative is losing the deposit entirely. The treasurer doesn’t care whether the bank has its own blockchain or uses someone else’s. They don’t care about tokenized deposits versus stablecoins versus programmable rails. They care about yield. If the bank isn’t offering a competitive return, the money walks and now it can walk in seconds.

We already know what this looks like. During the 2022-2023 rate hiking cycle, when the Fed raised rates by 525 basis points, deposit betas rose faster than in any cycle since before the financial crisis, reaching 0.4 within one year, compared to three years in the prior 2015-2019 cycle. Banks had to raise rates aggressively to retain deposits, and even after the last rate hike, cumulative deposit betas kept rising through 2024 as competition intensified. Community banks saw their cost of funds jump by 66 to 94 basis points in a single quarter. By the end of 2023, 19% of community bank assets were funded by wholesale sources, the highest level since 2017, because retail deposit competition had become too expensive.

That was just the rate environment doing its work. Now add instant access tokenized yield instruments into the mix.

What this does to lending

In December 2025, the Federal Reserve published a research note that modeled exactly this scenario. The paper, “Banks in the Age of Stablecoins,” examined what happens to bank lending when deposits migrate to stablecoins and the money doesn’t recycle back into the banking system.

The key finding:

for every $100 billion of net deposit drain that isn’t recycled to banks, empirical pass-throughs imply a $60 to $126 billion contraction in bank lending

The range comes from the deposit to lending multiplier, the empirical relationship between deposit levels and loan provision, estimated at 0.6 to 1.26 across the academic literature.

The Fed modeled three adoption scenarios. In the low case, the lending contraction ranges from $65 to $141 billion. In the moderate case, $190 to $408 billion. In the high case, which assumes stablecoin issuers gain access to Federal Reserve master accounts, the contraction reaches $600 billion to $1.26 trillion.

And here’s why the “recycling” question matters so much. When a deposit converts to a stablecoin, where do the reserves go? If they go back into bank deposits, the funding stays in the system and lending capacity is preserved. But look at Tether’s reserve composition as of mid-2025: 64% US Treasuries, 10% repos, 14% money market funds, and just 3.7% bank deposits. The vast majority of stablecoin reserves sit outside the banking system. The money doesn’t come back.

This is the mechanism that the yield loophole debate misses entirely. It doesn’t matter whether the stablecoin itself pays interest. What matters is that when a deposit leaves a bank to become a stablecoin, only a tiny fraction of that value returns as a bank deposit. The rest goes into Treasuries and money markets. The bank loses the funding. The lending capacity disappears.

The 1980s replay

When money market funds gave depositors a better alternative in the 1980s, banks didn’t lose all their deposits. They lost their pricing power. They had to raise deposit rates, offer MMDAs, and compete on yield for funding that used to be free. Some banks adapted and thrived. Over a thousand S&Ls didn’t survive the transition. The survivors consolidated, found new lending categories, and rebuilt margins over a decade. But the industry was permanently restructured around a higher cost of funding.

Programmable settlement is setting up the same dynamic, only faster. The instruments are better, tokenized Treasuries with instant stablecoin redemption versus traditional MMFs with T+1 settlement. The access is broader, any treasurer with a wallet, not just those with brokerage accounts. The timeline is compressed as the infrastructure is already live. And the recycling problem is worse, MMF assets at least circulated partially through the banking system, while stablecoin reserves flow predominantly into Treasuries and repos.

Close every yield loophole. Shut down exchange rewards programs. It won’t change the underlying math. When capital can move instantly into yield bearing instruments and back, banks will have to pay to keep it. The deposits might stay. But they won’t be cheap. And the loans they fund won’t be either.

That’s the end of idle money. And the Fed’s own research tells us what it costs: for every hundred billion that doesn’t come back, sixty to a hundred and twenty six billion in lending disappears with it.

References

Legislation and regulatory sources

Banking lobby and deposit protection

Deposit trends, bank performance, and lending impact

Money market fund history and Regulation Q

Tokenized money market funds — mechanics and risks

Tokenized assets and stablecoin market data

Institutional adoption surveys

Atomic Settlement

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