After two days of heady discussions with academics and policymakers from around the world in high-altitude Jackson Hole, Wyoming, I’m now decompressing back at Street Level. The main theme of this year’s Kansas City Fed symposium was financial innovation in the payments space—a fast-evolving topic with major implications for consumers and central bankers alike. In this post, I’ll share some general takeaways from those Jackson Hole talks and highlight related New York Fed research on payments and financial intermediation.
Econ in the Tetons
Much of the conversation at Jackson Hole centered around technological innovations that are creating new possibilities for payments to be made directly between parties without the use of a traditional hub to coordinate those transactions. Central banks have long helped provide that hub and the “rails” on which many payments run. So naturally, we at the Fed are interested in how these changes should be supported, what we can expect as payments processors ourselves, and what risks these innovations pose to both the payments system narrowly and the financial system more broadly.
Conference participants demonstrated how some aspects of blockchain technology surely must be welcomed, as they open the door to what are known as “smart contracts”—richer kinds of payment arrangements that can be made contingent on circumstances relevant to the parties paying one another. That said, some of the papers presented were more cautionary in assessing the implications of such innovations for both banks and other entities who do “bank-like” things—so-called “non-bank financial institutions” (NBFIs)—and for consumer well-being. I won’t go into detail about the presentations made at the conference, but the links are available here if you’re curious.
What I want to focus on instead is the work that we at the New York Fed have done in the broad area of what economists call “financial intermediation”—work that is fundamental to understanding the questions raised at Jackson Hole.
From Basic Banking…
When evaluating new payment technologies, it’s useful to recall the basic purpose of the financial system: to enable participants in our economy to concentrate their purchasing power on desired goods and services at specific times and under specific circumstances. Ultimately, this is what all borrowing, lending, and insurance contracts facilitate.
The “circumstances” noted above very much include instances where someone has an innovative idea and now needs the resources to bring it to fruition—things like loans, venture capital, and equity issuances are the means to make this happen.
Vitally, every single one of these desired functions relies in the end on payment systems for their delivery. Perhaps obviously, then, any financial system that doesn’t do this well is not fully delivering for society.
Financial institutions—banks and, increasingly, NBFIs—have traditionally carried out those functions through financial intermediation: gathering deposits from savers and lending those funds out to borrowers. As intermediators, these institutions naturally amass a great deal of information with respect to credit risks, economic conditions, and financial markets. Ideally, this vantage enables them to direct available credit to where it is most needed.
Payments are a natural adjunct to this primary activity—if two people have accounts at the same bank or NBFI, it’s easy to see how they can pay each other through that institution. Even if they don’t share a bank or NBFI, those entities can set up a network to move claims around to let us make payments as consumers.
…To the Blockchain
Blockchain technology has the potential to revolutionize banking, with distributed digital ledgers and tokenized deposits replacing traditional databases. Advocates say that blockchain-based banking could offer a variety of benefits, most notably real-time transactions, higher security, and lower operational costs.
The nature of the information needed by market participants to engineer safe payments to one another is also evolving. At present, a great deal of information is exchanged before payments are effected and finalized. These steps take time, effort, and resources. To what extent can emerging payment technologies enable us to reduce these burdens?
Economists at the New York Fed have explored such potential benefits in a number of Liberty Street Economics posts, assessing the promise of permissionless blockchain payment systems and the potential for interoperability across blockchain payment systems.
Stablecoin Shocks?
Of course, the transition to blockchain-based banking and payments is not without risk. Just as banks can be destabilized by depositor flight, our researchers have documented that digital assets can also be subject to runs and shocks.
Stablecoins—blockchain-based crypto assets whose value is pegged to that of a fiat currency, usually the U.S. dollar—have seen rapid adoption as a payment instrument in recent years, accelerated by the passage of the 2025 GENIUS Act. Though their name implies a high degree of security, stablecoins are not fully immune from instability.
Our economists have done considerable research in this area, analyzing runs on stablecoins and documenting shocks to the stablecoin market—whether emanating from within the crypto industry or from more traditional financial markets.
Systemic Effects
Zooming out, since stablecoins’ value is based on that of other assets, what does this dynamic mean for the stability of the overall financial system? One practical example is the effect that stablecoins might have on banks. What if many of us simply shift our bank deposits into stablecoins, thus hampering banks’ capacity to gather the information and capital necessary to lend to those who need credit? Some observers worry about this scenario, as the effects on the banking system might have far-reaching reverberations.
Recently, our economists have been examining the ties between stablecoins and financial stability more broadly. My colleague Pablo Azar and his coauthor have a new piece that analyzes an innovation to stablecoins themselves. Instead of being linked to a traditional fiat currency (the U.S. dollar), some newer stablecoins are linked to… other crypto assets. The authors argue that this can create risks within the crypto ecosystem itself, and thereby more broadly.
This wave of innovations has led economists to revisit a classic banking-sector question: is it really essential for the same institution that offers consumers easy-to-withdraw deposits to also issue hard-to-liquidate loans? In this paper, the New York Fed’s Todd Keister explores one possible alternative: a so-called “narrow bank” that offers payment and withdrawal services, leveraging the advantages of new technologies while leaving some traditional lending to others, like finance companies.
Street Level Observations: Will Payment Innovations Pay Off?
As new protocols, platforms, and instruments enter the payments space, it’s important to keep things in perspective by subjecting these technologies to a couple of tests.
First, do these tools facilitate new types of transactions that weren’t feasible before? Alternatively, do they allow for cheaper transactions, freeing up resources for use elsewhere in society?
Second, to what extent do innovations in payments change the risks facing all parties within the financial system, and in turn the broader economy? Stablecoins, for example, are typically promoted as aiding cheap cross-border payments, while tokenization of safe assets like U.S. Treasury securities is promoted as helpful for making those assets easier to buy and sell. These same properties might arguably create risks for those presently providing payments—banks, most obviously.
All these claims may have merit, and each must be examined carefully. Moreover, both banking and payments are parts of our economy where taxpayer support has been used to prevent problems from getting worse. Given this risk, more research and a sharp eye toward avoiding the transference of risks to the public are both going to be important.
Kartik B. Athreya is the director of research and head of the Research and Statistics Group at the Federal Reserve Bank of New York.
How to cite this post:
Kartik B. Athreya, “Jackson Hole: Exploring the Financial Frontier,” Federal Reserve Bank of New York Liberty Street Economics, September 3, 2026, https://libertystreeteconomics.newyorkfed.org/2026/09/jackson-hole-exploring-the-financial-frontier/
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Disclaimer
The views expressed in this post are those of the author(s) and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the author(s).
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