Stablecoin Growth Puts $500B at Risk in Bank Deposits and Net Interest Income

Standard Chartered warns that stablecoins could attract $500B in bank deposits in developed markets by 2028.

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

The concern comes amid growing adoption of the stablecoin, with the total amount in use up nearly 40% in the past year to just over $300 billion.

Long-Term Income Concerns

A Bloomberg report citing an analysis from Geoff Kendrick, global head of crypto research at Standard Chartered, estimates that stablecoins could cause up to $500 billion in deposit outflows from lenders in industrialized countries by the end of 2028. In the US specifically, the company predicts that bank deposits may fall by an amount equal to the total market capitalization.

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

“US banks are also under threat as payment networks and other core banking functions shift to stablecoins,” he wrote.

One of the most controversial issues between traditional financial institutions and crypto firms is whether stablecoin holders should be allowed to receive rewards such as yields. Coinbase currently offers 3.5% rewards on balances held in Circle’s USDC, a practice that banking groups argue could accelerate deposit losses if allowed to continue.

“Bank lobbyists and bank associations are trying to close out their competition,” Coinbase CEO Brian Armstrong said at the World Economic Forum in Davos last week. “I can’t stand that; I think it’s un-American, and it hurts consumers.”

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

Regional Lenders Identified as High Risk

To assess which banks face the greatest exposure, the analyst used the total interest income as a share of the total income, explaining it as a clear indicator of the flight risk of the deposit because it is in the middle of the generation of NIM. Using this measure, US regional financial institutions emerged as more vulnerable than diversified lenders and investment banks, which were 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 greatest risk.

Local companies are more sensitive to defaults because they rely more on traditional lending practices than their larger peers. On the other hand, the performance of the market raises the relative risk of the immediate.

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

Still, Kendrick sees long-term change as inevitable.

“Each bank’s actual exposure to a stablecoin-driven reduction in NIM earnings will largely depend on its response to this threat,” he said.

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