Are Stablecoins Slowly Draining Banks? Insights from Standard Chartered

In recent years, traditional bank deposits have quietly served as a crucial pillar of the financial system, providing lenders with low-cost funds necessary for extending credit and fostering economic growth.

Key Takeaways

Standard Chartered warns that stablecoins could lead to a substantial reduction in bank deposits, with potential losses reaching $500 billion by 2028.
The rise in the popularity of stablecoins challenges core banking functions, impacting transaction settlements and liquidity management.
Regional banks appear more vulnerable to deposit outflows than large institutions due to their reliance on deposits for funding.
Debate continues regarding whether consumers should be allowed to earn rewards on stablecoin balances, with implications for traditional banking.

Are Stablecoins Quietly Draining Banks? Standard Chartered Thinks So

Standard Chartered has raised concerns that stablecoins could be gradually siphoning off funds from conventional banking accounts. A recent analysis by the bank, referenced by Bloomberg, suggests that if the trend continues, up to $500 billion in deposits may leave banks in developed markets by the year 2028.

Growth of Stablecoins Challenges Traditional Banking

Geoff Kendrick, the global head of digital assets research at Standard Chartered, points out that the increasing importance of dollar-pegged stablecoins may shift funds into the digital asset ecosystem. This shift could be accelerated further if forthcoming U.S. legislation clarifies regulatory frameworks.

The data supporting this concern is already emerging. According to DefiLlama, the supply of stablecoins has surged more than 40% in the last year, surpassing $300 billion.

Stablecoin Market Cap Data

Standard Chartered estimates that U.S. bank deposits could diminish by about one-third in relation to the total market capitalization of stablecoins. The growth could sharply increase if the proposed CLARITY Act is passed by Congress.

This issue extends beyond mere payments; Kendrick emphasizes that stablecoins are increasingly influencing key banking operations, such as transaction settlements and liquidity management.

A significant area of contention between banks and cryptocurrency platforms is whether consumers should earn rewards on stablecoin balances. For instance, Coinbase offers approximately 3.5% rewards on Circle’s USDC, a practice that banking lobbyists believe could incentivize customers to withdraw funds from banks, making crypto holdings more appealing than traditional accounts.

In contrast, Coinbase CEO Brian Armstrong argues that banks are attempting to use regulation as a means to stifle competition rather than to protect consumers.

Vulnerabilities Among Regional Banks

Standard Chartered's analysis examined net interest margin income as a fraction of total revenue, a measure closely linked to deposit levels. The findings indicate that regional U.S. banks might be more vulnerable than larger, diversified institutions.

Among 19 banks and brokerages assessed, Huntington Bancshares, M&T Bank, Truist Financial, and Citizens Financial Group were pinpointed as the most at-risk.

Regional banks heavily depend on deposits to finance loans, so even slight outflows could lead to significant repercussions.

Currently, market conditions imply an immediate threat isn’t present; U.S. bank deposits have bounced back after substantial declines in 2022 and early 2023, hitting a high of $18.72 trillion in December 2025.

Core deposits increased by roughly 4% in 2025, up from 1.5% the previous year, bolstered by Federal Reserve rate cuts and a slowdown in quantitative tightening.

Bank Deposit Growth Chart

Bank stocks have also fared well, with the KBW Regional Banking Index rising nearly 6% in January, compared to just over 1% for larger banks.

The Debate Over Treasury-Backed Stablecoins

Nonetheless, Geoff Kendrick from Standard Chartered insists that the longer-term implications of this trend should not be overlooked. He predicts that if the stablecoin market cap reaches $2 trillion, deposit losses could potentially approach $500 billion.

Kendrick underscores that the current practices regarding reserves limit the reintroduction of funds into the banking system. Both Tether and Circle, the leading issuers, maintain only 0.02% and 14.5% of their reserves in bank deposits, respectively, meaning most of their backing assets are held in Treasury bills rather than in traditional bank accounts.

Conversely, not everyone agrees that stablecoins represent a threat to stability. Historians Niall Ferguson and Manny Rincon-Cruz shared in a recent Bloomberg opinion article that the concerns regarding deposit flight are exaggerated. They noted that since the launch of USDC in 2018, U.S. bank deposits have increased by more than $6 trillion, whereas stablecoins have grown by around $280 billion.