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The history of payments is an arms race that pits law enforcement against criminals, with criminals typically maintaining an edge. The newest technology is crypto and stablecoins. Milton Friedman saw them coming. Nearly a decade before Bitcoin launched, he described the technology that stablecoins have become: e-cash that is a digital peer-to-peer bearer instrument. He knew gangsters would make it their own, and they have.

Friedman's observation has a counterpart in an older principle about money. Gresham's Law — an observation associated with the Elizabethan financier Sir Thomas Gresham and later formalized by economists — holds that “bad money” drives out “good money.” In the era of metallic coinage, the rule was simple: spend the lighter coin, keep the heavier.

In this post, we argue that a modified version of Gresham’s Law applies to stablecoins. Stablecoins are private digital tokens that promise to maintain a fixed value — typically one U.S. dollar each — backed by reserve assets whose composition varies by issuer. Users who value anonymity gravitate toward what Gresham might have called the bad money: the coin with weaker oversight that makes identification easier to avoid.

Put differently: in stablecoins, as in metallic coinage, bad money drives out good — where “bad” means less transparent and less certain in value.

We authored this post jointly with our friend and colleague, Professor Jeremy Kress of the University of Michigan Ross School of Business.

On March 19, 2026, the U.S. bank regulatory agencies issued three notices of proposed rulemaking (NPRs) that would substantially weaken the regulatory capital framework for the largest U.S. banks. The proposals would: (1) revise the Basel III minimum risk-based capital rules for the largest banks; (2) recalibrate the surcharge for global systemically important banks; and (3) update the standardized approach risk-based capital rules.

These proposals are the latest in a sustained campaign to roll back the post-crisis capital framework. Earlier this year, the agencies finalized reductions to the supplementary leverage ratio for the largest banks, justifying that move on the premise that risk-based capital requirements would remain a binding constraint (see our September 2025 comment letter opposing those reductions). The latest proposals run directly counter to that premise. And the dilution of stress tests — another pillar of the post-crisis framework — compounds the effect further. The agencies present each change as modest and self-contained. But together, they represent a severe erosion of the safeguards put in place after 2008.

This post summarizes our forthcoming comment letter to the Federal Reserve, FDIC, and OCC opposing the proposals.