Stablecoins pose a significant and growing threat to traditional bank deposits, not only in the United States but across the globe, according to a recent comprehensive report from analysts at Standard Chartered. The esteemed global financial institution has cast a stark warning, highlighting the potential for substantial outflows from conventional banking systems as the adoption of these digital assets continues to expand. The report underscores the intricate financial mechanics at play and calls for urgent regulatory attention to mitigate what could become a systemic challenge.

Central to Standard Chartered’s analysis is the ongoing legislative debate surrounding the U.S. CLARITY Act, a proposed bill designed to impose restrictions on stablecoin activities, most notably by prohibiting interest on stablecoin holdings. Geoff Kendrick, Standard Chartered’s global head of digital assets research, emphasized that the persistent delay in the passage of this critical legislation serves as a potent "reminder that stablecoins pose a risk to banks." This legislative inertia, Kendrick notes in the report seen by Cointelegraph, allows the nascent stablecoin market to mature and expand without the guardrails that many financial experts believe are necessary to protect traditional financial stability.

The quantitative projections presented by Standard Chartered are particularly striking. Kendrick estimates that "US bank deposits will decrease by one-third of stablecoin market cap." To put this into perspective, with the current market capitalization of US dollar-pegged stablecoins hovering around $301.4 billion, as meticulously measured by CoinGecko, this translates to a potential outflow of over $100 billion from U.S. bank accounts. This figure, though substantial, represents only the immediate impact. Should the stablecoin market continue its rapid growth trajectory, these outflows could escalate dramatically, leading to profound implications for the liquidity and profitability of the banking sector.

The findings from Standard Chartered arrive amidst a heated debate surrounding the CLARITY Act. The proposed legislation has faced significant pushback from various corners of the cryptocurrency industry. Prominent players like Coinbase have notably withdrawn their support for the bill, arguing that such restrictions could stifle innovation and hinder the growth of the digital asset ecosystem. Similarly, Jeremy Allaire, CEO of Circle – the issuer of the second-largest stablecoin, USDC – has publicly dismissed fears of stablecoin-driven bank runs as "totally absurd." Allaire and others in the industry contend that stablecoins serve different purposes and cater to different user bases than traditional banks, suggesting that the competition for deposits is not as direct or threatening as some analysts claim. However, Standard Chartered’s report provides a robust counter-argument, emphasizing the direct substitutability of stablecoin holdings for traditional deposits, especially when stablecoins offer competitive yields.

Regional US Banks Most Exposed, Investment Banks Least

A deeper dive into the report reveals that the risk is not uniformly distributed across the banking landscape. Kendrick specifically highlighted Net Interest Margin (NIM) income as the most accurate measure of this exposure. NIM is a crucial profitability metric for banks, calculated as the difference between the interest income earned on assets (like loans) and the interest paid on liabilities (like deposits), divided by the average interest-earning assets. It essentially reflects how efficiently a bank is generating profit from its core lending and deposit-taking activities.

"NIM income as a percentage of total bank revenue is the most accurate measure of this risk because deposits drive NIM, and they risk leaving banks as a result of stablecoin adoption," Kendrick elucidated. When deposits flow out of a bank, its ability to lend diminishes, directly impacting its interest income and, consequently, its NIM. This erosion of NIM can significantly depress a bank’s overall profitability and even its operational viability.

The report identifies a clear disparity in vulnerability: "We find that regional US banks are more exposed on this measure than diversified banks and investment banks, which are least exposed." Regional banks typically rely heavily on traditional deposit-gathering for their funding and lending operations, making their NIM particularly sensitive to deposit outflows. Their business models are often less diversified than those of larger, global investment banks, which have multiple revenue streams from trading, advisory services, and wealth management, making them more resilient to shifts in deposit bases. Kendrick specifically named Huntington Bancshares, M&T Bank, Truist Financial, and CFG Bank as among the most exposed, given their significant reliance on deposit-funded lending within their regional markets.

The specific amount of US bank deposits at risk from stablecoin adoption is contingent on a complex interplay of factors, including the geographical location of the stablecoin issuer’s reserve deposits, the demand profile (domestic versus foreign), and the nature of the demand (wholesale versus retail). These nuances determine the ultimate impact on the traditional banking system.

Tether and Circle Hold Just 0.02% and 14.5% of Reserves in Bank Deposits

A critical aspect of the report addresses the common argument that if stablecoin issuers simply re-deposit their reserves into the traditional banking system, there would be no net reduction in overall bank deposits. Kendrick explored this hypothesis, stating: "The idea is that if a deposit leaves a bank to go into a stablecoin, but the stablecoin issuer holds all of its reserves in bank deposits, there would be no net deposit reduction." This theoretical scenario would suggest a mere reshuffling of funds within the banking system, rather than an outright drain.

However, the reality, as uncovered by Standard Chartered, starkly contrasts with this theory. The two largest stablecoin operators, Tether (USDT) and Circle (USDC), maintain surprisingly low proportions of their reserves in traditional bank deposits. Tether, the issuer of the dominant USDt, holds a mere 0.02% of its vast reserves in bank deposits. Circle, while having a higher percentage, still only allocates 14.5% of its USDC reserves to bank deposits. The vast majority of their reserves are held in other assets, primarily short-term U.S. Treasury bills, money market funds, and commercial paper. "So very little re-depositing is happening," Kendrick concluded, effectively debunking the argument that stablecoin growth doesn’t impact net bank deposits. This means that when a dollar moves from a traditional bank account into a stablecoin, it largely exits the traditional banking system as an interest-earning deposit, shifting instead into other financial instruments that do not directly contribute to the traditional banking sector’s deposit base or lending capacity.

Regarding the domestic versus foreign demand for stablecoins, Kendrick concluded that domestic demand directly drains local bank deposits, whereas foreign demand does not necessarily have the same immediate impact on the local banking system. He estimated that approximately two-thirds of current stablecoin demand originates from emerging markets, with the remaining one-third coming from developed markets. This implies that while developed markets face a significant outflow risk, emerging market banks could experience even greater pressures as their populations increasingly adopt stablecoins for remittances, cross-border trade, and as a hedge against local currency volatility.

Looking ahead, the report presented alarming projections for future deposit outflows. Based on a projected stablecoin market capitalization of $2 trillion by the end of 2028, Standard Chartered estimates that approximately $500 billion of deposits could leave developed-market banks. The impact on emerging-market banks could be even more severe, with roughly $1 trillion potentially exiting their systems. These figures paint a picture of a transformative shift in global financial flows, underscoring the urgency for regulators and policymakers to address the implications of stablecoin proliferation.

Despite the current legislative delays, Kendrick expressed Standard Chartered’s expectation that the CLARITY Act will ultimately pass by the end of the first quarter of 2026. This optimism suggests a belief that the systemic risks posed by stablecoins will eventually compel legislative action. Furthermore, Kendrick emphasized that bank-run risks are not solely confined to stablecoins. He pointed to the "inevitable" expansion of tokenized real-world assets (RWAs) as another significant factor that could contribute to financial instability. RWAs involve bringing traditional assets like real estate, commodities, or even company shares onto blockchain networks, enabling fractional ownership and increased liquidity. As more traditional assets are tokenized and traded on decentralized platforms, the potential for funds to bypass traditional financial intermediaries grows, further challenging the established banking model.

This comprehensive report from Standard Chartered serves as a crucial intervention in the ongoing debate about the future of finance. It highlights that while stablecoins offer innovative solutions and efficiencies, their unchecked growth and current reserve structures pose tangible risks to the stability and profitability of traditional banking systems. The warnings from Standard Chartered, echoed by other financial giants like Bank of America (which previously flagged a $6 trillion bank deposit risk from interest-bearing stablecoins), underscore the critical need for robust regulatory frameworks that can balance innovation with financial stability, ensuring that the evolution of digital assets benefits the broader economy without undermining its foundational pillars.