U.S. dollar-backed stablecoins could pull approximately $500 billion in deposits from U.S. banks by the end of 2028, according to a recent estimate by Standard Chartered. This new analysis may intensify the legislative battle between banks and crypto companies over establishing rules for the digital asset sector. Standard Chartered is a British multinational banking and financial services company headquartered in London. It operates a network of over 1,200 branches and outlets across more than 70 countries.
Regional U.S. banks are predicted to be the most vulnerable to deposit losses due to stablecoins, according to Geoff Kendrick, global head of digital assets research at Standard Chartered. The analysis was based on lenders’ net interest margin income, which represents the difference between the earnings on loans and the payouts on deposits. Kendrick noted that U.S. banks face a threat as payment networks and other core banking activities shift towards stablecoins.
While a bill signed into law by former U.S. President Donald Trump aims to create a federal regulatory framework for stablecoins, a perceived loophole regarding interest payments remains a point of contention. The bill prohibits stablecoin issuers from paying interest directly, but banks argue it allows third parties, like crypto exchanges, to offer yield on tokens, creating deposit competition. Banking lobbyists have warned that failure to close this loophole could lead to a significant outflow of deposits, threatening financial stability. Crypto companies, however, contend that barring interest payments on stablecoins would be anti-competitive.
The total amount of bank deposits at risk depends on whether stablecoin issuers hold their reserves within the banking system. If stablecoin issuers keep a significant portion of their reserves in U.S. banks, it could mitigate the potential deposit flight. However, Kendrick pointed out that the two largest stablecoin issuers, Tether and Circle, primarily hold their reserves in U.S. Treasuries, resulting in minimal re-depositing.
