A new analysis from Standard Chartered warns that U.S. dollar-backed stablecoins could pull approximately $500 billion in deposits out of the U.S. banking system by the end of 2028. The report, led by Geoff Kendrick, the bank's global head of digital assets research, highlights a significant threat to banks' net interest margin income, particularly for regional U.S. banks that rely heavily on retail and commercial deposits for funding.
The risk stems from stablecoins increasingly replacing traditional bank deposits in payments and transactional use cases. Kendrick noted, "U.S. banks ... face a threat as payment networks and other core banking activities shift to stablecoins." The warning comes amid ongoing legislative debates in the U.S. Senate, where disagreements over how to regulate stablecoins—whether as payment instruments, securities, or bank-like liabilities—have stalled progress. A key point of contention is a regulatory loophole that allows third parties, like crypto exchanges, to offer yield on stablecoin balances, creating direct competition for bank deposits.
Industry groups representing banks argue that without Congressional action to address this gap, deposit outflows could accelerate, potentially weakening bank balance sheets and raising financial stability concerns. Crypto firms, however, counter that applying bank-style restrictions would be anti-competitive and stifle innovation.
The scale of potential deposit loss is also influenced by how stablecoin issuers manage their reserves. Kendrick pointed out that if issuers kept a large share of reserves within the U.S. banking system, the risk would be lower. However, in practice, major issuers like Tether and Circle hold the bulk of their reserves in U.S. Treasuries rather than commercial bank deposits, meaning "very little re-depositing is happening" to offset the outflow.
