Credit Unions' ALM Strategies in the Stablecoin Era

As stablecoins begin to grow in popularity, credit unions are about to face a balance sheet question most haven't had to think about yet: what happens to your ALM strategy when a chunk of your funding base has to be held in cash and Treasuries by law?

The regulatory setup

The GENIUS Act, and the NCUA rulemaking implementing it, is creating a real pathway for credit unions to issue their own payment stablecoins. However, a credit union can't issue a stablecoin directly -- it has to go through a CUSO subsidiary or vendor partner. And that subsidiary or partner must hold high-quality liquid assets (“HQLA”) such as cash, short-dated Treasuries, or repo against every dollar of stablecoin issued.

The reserve requirement creates a real balance sheet capacity constraint.

Why full reserve changes the math

Every dollar sitting in HQLA inside that stablecoin subsidiary is a dollar that cannot fund a loan. The moment a credit union issues a stablecoin at any meaningful scale, it has effectively created a second institution inside itself, one that behaves like a narrow bank, sitting next to the original institution that still needs to fund the credit union’s mission and member strategy.

How much this hurts depends on where the money comes from. If stablecoin balances represent new money, funds that wouldn't otherwise have been on deposit, the effect is close to neutral. A new liability creates a matched new asset, so there is no real damage to lending capacity.

But if it's substitution -- existing members moving share balances into the stablecoin because it's more liquid or better yielding -- that's a direct drain on loanable funds. You have the same balance sheet with less capacity to make loans.

The pressure exists either way

Here's the reality we’ll have to accept: you don’t have to issue anything to be impacted by this dynamic. If members can hold any regulated stablecoin -- yours, a competitor's, a big bank's -- at close to the risk-free rate with instant liquidity, that raises the bar every plain share account has to clear to stay competitive. That's higher deposit betas and NIM compression happening across the industry, not just at credit unions that choose to participate directly.

Issuing your own stablecoin doesn't create this pressure. It creates a way of capturing the value instead of ceding it to Circle, Tether, or a bank-sponsored issuer who will happily take deposit relationships you spent decades building.

What this means for strategy

A few consequences to consider:

Lower loan-to-share ratios, as a growing share of the balance sheet sits in fully-reserved, non-earning-for-lending assets

Greater reliance on wholesale funding to backfill core deposits that migrate into stablecoin form

Higher deposit betas and higher cost of funds, as members demand better pricing to keep balances in traditional shares

A harder push toward active balance sheet management like participations, forward-flow sales, and securitization because the old model of originate-and-hold doesn't work as well when core funding is under structural pressure.

That last point is the biggest cultural shift. Credit unions have historically borrowed short and lent long -- a structural mismatch -- that has been easy enough to manage. A funding base under these new pressures pushes the industry toward becoming more active managers of loan assets. We’ll continue to originate relationships but then have to find capital-efficient ways to keep serving members without holding everything on balance sheet indefinitely.

The real risk isn't the technology

If liabilities can shift into a stablecoin in real time, but loan assets are locked in a portfolio for years, that's a velocity mismatch. That mismatch represents the actual risk, not the stablecoin itself. The fix requires building the machinery to let assets move as close to the same speed as liabilities now can.

The NCUA's proposed standards are aligning closely with the OCC's framework for bank subsidiaries, and the statutory backstop sets a final effective date of January 18, 2027, regardless of whether the rulemaking is finished by then.

Stablecoin adoption is more than a payments product decision, it’s an ALM strategy decision and credit union boards should start treating it as one now.

Disclosures: This material is for informational purposes only and reflects current market conditions and opinions, which are subject to change. No assurance can be given that any expectations will be realized. It does not constitute investment advice or a recommendation to buy or sell any securities. Decisions should be based on a client’s specific objectives, financial situation, and risk tolerance.