Regional banks most vulnerable due to net interest margin exposure
U.S. dollar-backed crypto tokens known as stablecoins could pull around $500 billion in deposits out of U.S. banks by the end of 2028, Standard Chartered estimated on Tuesday – new analysis that could intensify a fight between banks and crypto companies over legislation to set rules for the digital asset sector.
Regional U.S. banks would be most exposed to a loss in deposits due to stablecoins, said Geoff Kendrick, global head of digital assets research at Standard Chartered.
The analysis was based on lenders’ net interest margin income – the difference between what a bank earns on loans and what it pays out on deposits.
“U.S. banks … face a threat as payment networks and other core banking activities shift to stablecoins,” Kendrick said in the research note.
U.S. President Donald Trump last year signed into law a bill creating a federal regulatory framework for stablecoins, which is widely expected to lead to greater general use of the dollar-pegged tokens. Proponents say stablecoins can be used to send and receive payments instantly, although they are most often used for trade in and out of other crypto tokens, such as bitcoin.
That bill prohibited stablecoin issuers from paying interest on cryptocurrencies, but banks say it left open a loophole that would allow for third parties – such as crypto exchanges – to pay yield on tokens, creating new competition for deposits.
Banking lobbyists have argued that unless Congress closes that loophole, banks will see an exodus of deposits, the primary source of funding for most lenders, potentially threatening financial stability.
Crypto companies have pushed back, arguing that barring them from paying interest on stablecoins would be anti-competitive.
A hearing to debate and vote on crypto legislation in the Senate Banking Committee was postponed earlier this month, in part due to disagreement over how lawmakers should address banks’ concerns.
Kendrick said the total amount of bank deposits at risk from stablecoin adoption hinges on whether issuers hold their reserves in the banking system. If stablecoin issuers keep a large share of their reserves in U.S. banks, it would reduce the potential deposit flight, he wrote.
Still, the two largest stablecoin issuers – Tether and Circle – hold most of their reserves in U.S. Treasuries, “so very little re-depositing is happening,” Kendrick said.
(Reporting by Hannah Lang in New York. Editing by Mark Potter)
