Stablecoins are set to reshape the landscape of the US banking system over the coming years, with a startling forecast from Standard Chartered estimating that up to $500 billion in deposits could be siphoned off from traditional banks by the end of 2028.
Stablecoins Could Pressure Bank Earnings And Deposits
This bold prediction, published recently, highlights a looming challenge for regional US banks, which appear to be the most susceptible to deposit losses as the adoption of dollar-pegged digital tokens accelerates. Geoff Kendrick, the global head of digital assets research at Standard Chartered, warns that smaller and mid-sized banks are likely to feel the brunt of the shift as stablecoins start performing roles typically reserved for banks, including payment processing and core financial services.
The focus of Standard Chartered’s analysis is on the net interest margin income, which is the difference between what banks earn from loans and what they pay out to depositors. As deposits begin to flow out of the banking system, this vital income stream may face significant pressure, particularly for banks heavily reliant on consumer and commercial deposits.
Kendrick points out that as payment networks and essential banking functions gradually transition toward stablecoin-based models, US banks could be subjected to increasing financial risks.
Banks And Crypto Firms Clash
Despite efforts to regulate the stablecoin market, the current legislative landscape—specifically the GENIUS Act—prevents stablecoin issuers from providing interest on their tokens. This restriction is a point of contention for banks, which fear that it opens the door for third parties, including cryptocurrency exchanges, to lure depositors with return offerings on stablecoin holdings.
In recent months, various banking industry groups have raised alarms about this so-called “stablecoin loophole,” arguing that it could heighten competition for deposits. They warn of potential widespread outflows from banks and the associated financial stability risks, urging lawmakers to modify the bill to address these concerns.
Conversely, crypto advocates argue that barring interest payments linked to stablecoins stifles competition and curtails innovation within the financial sector, potentially delaying critical legislative developments for the cryptocurrency market.
Earlier this month, a Senate Banking Committee hearing intended to debate and vote on proposed legislation for crypto market structure was postponed. The delay stemmed from lawmakers’ inability to reach a consensus on addressing banks’ fears regarding deposit flights.
Kendrick noted that the magnitude of potential deposit losses hinges partly on how stablecoin issuers manage their reserves. If these issuers maintain a significant portion of their backing assets within the US banking system, the fallout on traditional deposits might be less severe.
However, the two leading stablecoin issuers, Tether (USDT) and Circle (USDC), predominantly back their tokens with US Treasuries, resulting in a scenario where minimal funds are cycled back into the conventional banking sector.
