Stablecoin Growth Poses a $500B Risk to Bank Deposits and Net Interest Margins

Standard Chartered warns stablecoins could pull up to $500B from bank deposits in developed markets by 2028.

U.S. banks are increasingly at risk of losing deposits to the digital assets space as stablecoins continue to gain traction.

The concern comes amid growing stablecoin adoption, with the total supply in circulation having risen by roughly 40% over the past year to just over $300 billion.

Long-term Funding Concerns

A Bloomberg report citing analysis from Geoff Kendrick, global head of crypto research at Standard Chartered, estimates that stablecoins could cause the exit of as much as $500 billion in deposits from lenders across industrialized nations by the end of 2028. In the U.S. specifically, the firm predicts that bank deposits could fall by an amount equivalent to one-third of the total stablecoin market capitalization.

Kendrick believes that the pace of stablecoin growth is also likely to accelerate following the passage of the Clarity Act, legislation currently moving through Congress that is meant to regulate the digital asset industry.

“U.S. banks also face a threat as payment networks and other core banking activities shift to stablecoins,” he wrote.

One of the most contentious issues between traditional financial institutions and crypto firms is whether stablecoin holders should be allowed to earn yield-like rewards. Coinbase currently offers 3.5% rewards on balances held in Circle’s USDC, a practice that bank lobbying groups argue could hasten deposit losses if allowed to continue.

“The bank lobbying groups and bank associations are out there trying to ban their competition,” said Coinbase chief executive officer Brian Armstrong at the World Economic Forum in Davos last week. “I have zero tolerance for that; I think it’s un-American, and it harms consumers.”

Despite the ongoing dispute, Kendrick expects the broader crypto market structure bill to be approved by the end of the first quarter.

Regional Lenders Identified as Most Vulnerable

To assess which banks face the greatest exposure, the analyst used the net interest margin income as a share of total revenue, describing it as the clearest indicator of deposit flight risk because it is central to NIM generation. Using this measure, regional American financial institutions emerged as being more vulnerable than diversified lenders and investment banks, which are the least exposed.

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Among the 19 US banks and brokerages reviewed, Huntington Bancshares, M&T Bank, Truist Financial, and Citizens Financial Group were identified as facing the highest risk.

Local companies are particularly sensitive to payment outflows because they depend more heavily on traditional lending activities than their larger peers. On the positive side, market performance suggests limited immediate risk.

The KBW Regional Banking Index climbed nearly 6% in January, compared with a little over 1% for the broader metric. In the short term, expected interest rate cuts could reduce deposit costs, while government efforts to stimulate economic activity may support loan growth.

Even so, Kendrick views the longer-term shift as unavoidable.

“An individual bank’s actual exposure to a stablecoin-driven reduction in NIM income will depend largely on its own response to the threat,” he said.

He also highlighted that Tether and Circle, the two dominant stablecoin issuers, hold only 0.02% and 14.5% of their reserves in bank deposits, noting that “very little re-depositing is happening.”