Stablecoin Threat to Bank Deposits: Standard Chartered Reveals Alarming $500 Billion Risk by 2028
LONDON, March 2025 – Standard Chartered analysts have issued a stark warning about the growing threat stablecoins pose to traditional banking systems, revealing that regional U.S. banks face significant deposit risks as digital dollar alternatives gain mainstream adoption. The bank’s research indicates that stablecoin growth could drain hundreds of billions from bank deposits within the next three years, with regulatory delays exacerbating systemic vulnerabilities.
Stablecoin Threat to Bank Deposits: The Standard Chartered Analysis
Standard Chartered’s digital assets research team, led by global head Geoff Kendrick, published a comprehensive report this week detailing how stablecoins could fundamentally reshape banking deposit dynamics. The analysis specifically examines how dollar-pegged digital currencies might redirect capital away from traditional financial institutions. According to the report, the current $301.4 billion stablecoin market represents just the beginning of this transformation.
Kendrick’s team developed a sophisticated model to quantify deposit migration risks. They estimate that for every dollar flowing into stablecoins, approximately one-third of a dollar could leave the traditional banking system. This relationship creates substantial exposure for banks that rely heavily on deposit-funded lending operations. The researchers emphasize that this isn’t hypothetical – they’re already observing early signs of deposit migration in certain market segments.
Furthermore, the analysis considers multiple variables including issuer reserve management, geographic demand patterns, and regulatory frameworks. Standard Chartered’s approach combines traditional financial risk assessment with emerging digital asset analytics, creating what they describe as a “forward-looking risk framework” for banking institutions worldwide.
Regional Banks Face Greatest Exposure to Stablecoin Competition
Standard Chartered’s research reveals significant variation in how different banking segments face stablecoin competition. Regional U.S. banks demonstrate the highest vulnerability according to their analysis, while investment banks show the least exposure. This disparity stems from fundamental differences in business models and revenue structures across banking categories.
The report identifies several specific institutions with elevated risk profiles, including Huntington Bancshares, M&T Bank, Truist Financial, and CFG Bank. These regional banks face particular challenges because they typically derive substantial revenue from net interest margin (NIM) income – the difference between interest earned on loans and interest paid on deposits. As stablecoins attract deposits, these institutions could experience meaningful revenue pressure.
Kendrick explains this dynamic clearly: “NIM income as a percentage of total bank revenue serves as the most accurate measure of this risk because deposits directly drive NIM performance. When deposits migrate to stablecoins, banks lose the foundational capital supporting their lending operations.” This creates a dual challenge – reduced deposit bases and compressed interest margins simultaneously.
Net Interest Margin Vulnerability Analysis
Standard Chartered’s examination of net interest margin exposure reveals why regional banks face disproportionate risks. The table below illustrates how different banking segments compare according to their analysis:
| Banking Segment | NIM Exposure Level | Primary Risk Factors |
|---|---|---|
| Regional U.S. Banks | High | Deposit-dependent funding, retail focus |
| Diversified Banks | Medium | Mixed funding sources, global operations |
| Investment Banks | Low | Capital markets funding, fee-based revenue |
This segmentation helps explain why certain institutions face greater challenges than others. Regional banks typically maintain stronger community ties and traditional deposit relationships, making them more susceptible to digital alternatives that offer similar security with potentially enhanced utility.
CLARITY Act Delays Amplify Banking System Vulnerabilities
The delayed implementation of the U.S. CLARITY Act has emerged as a critical factor in Standard Chartered’s risk assessment. This proposed legislation, which would prohibit interest payments on stablecoin holdings, remains stalled in congressional committees. Kendrick describes this regulatory uncertainty as a “reminder that stablecoins pose a risk to banks” that requires immediate attention from policymakers and financial institutions alike.
Standard Chartered analysts still expect the CLARITY Act to pass by the end of the first quarter of 2026, but the delay creates what they term a “regulatory gap” during which stablecoins can continue growing without clear interest rate restrictions. This interim period allows digital dollar alternatives to establish stronger market positions before regulatory frameworks fully materialize.
The banking industry remains divided on appropriate regulatory responses. Some institutions advocate for stricter controls on stablecoin issuance and reserve requirements, while others push for banks to develop their own digital currency offerings. This regulatory uncertainty compounds the challenges banks face in developing coherent competitive strategies against rapidly evolving digital alternatives.
Reserve Management Practices Reduce Banking System Impact
Standard Chartered’s analysis reveals an important mitigating factor in how stablecoins currently affect banking systems. The report examines reserve management practices at major stablecoin issuers, finding limited redepositing of funds into traditional banks. Tether holds just 0.02% of its reserves in bank deposits, while Circle maintains 14.5% in banking institutions.
Kendrick explains the significance of these figures: “If stablecoin issuers held substantial reserves within the banking system where their currencies operate, deposit migration would create less systemic impact. The current reserve allocation patterns mean very little redepositing occurs, amplifying the net deposit reduction effect.”
This reserve management approach differs significantly from traditional money market funds or other cash alternatives. Stablecoin issuers typically maintain reserves in short-term Treasury securities, commercial paper, and other liquid assets rather than bank deposits. This practice reduces banking system support while maintaining stablecoin liquidity and stability.
Global Demand Patterns Shape Deposit Migration Risks
Standard Chartered’s research identifies distinct geographic patterns in stablecoin adoption that influence banking system impacts. The analysis suggests approximately two-thirds of current stablecoin demand originates from emerging markets, while one-third comes from developed economies. This distribution significantly affects how deposit migration manifests across different banking systems.
Domestic stablecoin demand directly drains local bank deposits, creating immediate pressures on national banking systems. Foreign demand, however, typically doesn’t affect domestic deposit bases since those funds already reside outside national banking systems. This distinction helps explain why U.S. banks face particular challenges – substantial domestic adoption combines with significant foreign holdings of dollar-pegged stablecoins.
Looking forward, Standard Chartered projects the stablecoin market could reach $2 trillion by late 2028. Based on current geographic demand patterns and reserve management practices, they estimate approximately $500 billion in deposits could leave developed-market banks, while roughly $1 trillion might exit emerging-market banking systems. These projections assume continued regulatory delays and stablecoin growth at current trajectories.
Industry Responses and Counterarguments
The banking and cryptocurrency industries have responded differently to Standard Chartered’s findings. Circle CEO Jeremy Allaire has previously dismissed concerns about stablecoin-driven bank runs as “totally absurd,” emphasizing the complementary nature of digital dollars and traditional banking. Meanwhile, Bank of America CEO Brian Moynihan has flagged approximately $6 trillion in bank deposit risks from stablecoin yield competition.
These divergent perspectives highlight the ongoing debate about digital currency integration within traditional finance. Some experts argue stablecoins primarily serve unbanked populations and cross-border transactions rather than competing directly with domestic banking services. Others contend that as stablecoin utility expands into everyday payments and savings, direct competition becomes inevitable.
Coinbase’s recent withdrawal of support for certain stablecoin initiatives adds another layer of complexity to this evolving landscape. The cryptocurrency exchange cited regulatory uncertainty and compliance challenges as primary reasons for its strategic shift, demonstrating how policy developments directly influence market behavior.
Broader Implications for Financial System Stability
Standard Chartered’s analysis extends beyond immediate deposit risks to consider broader financial stability implications. The report notes that bank-run risks aren’t limited to stablecoins alone but also stem from what they describe as the “inevitable” expansion of tokenized real-world assets. As more traditional assets migrate to blockchain platforms, additional pressure could emerge on conventional banking services.
This transformation represents part of a larger digitalization trend affecting multiple financial sectors. Banking institutions must develop comprehensive digital strategies that address both competitive threats and emerging opportunities. Some forward-looking banks are already exploring central bank digital currency integration and blockchain-based settlement systems to maintain relevance in evolving financial ecosystems.
The timing of these developments coincides with broader shifts in monetary policy and interest rate environments. As central banks navigate inflation challenges and economic uncertainty, digital currency adoption adds another variable to already complex policy equations. Financial regulators worldwide are accelerating their examination of digital asset frameworks in response to these converging trends.
Conclusion
Standard Chartered’s comprehensive analysis reveals substantial stablecoin threat to bank deposits, particularly for regional U.S. institutions facing significant net interest margin exposure. The report projects potential deposit migration reaching $500 billion from developed-market banks by 2028, with regulatory delays through the CLARITY Act creating additional vulnerabilities. While reserve management practices at major issuers currently limit banking system impacts, evolving stablecoin utility and adoption patterns suggest increasing competitive pressures on traditional deposit-taking institutions. As digital dollar alternatives continue gaining traction, banking systems worldwide must develop strategic responses that address both immediate risks and long-term transformation opportunities within increasingly digital financial ecosystems.
FAQs
Q1: What specific risks do stablecoins pose to bank deposits according to Standard Chartered?
Standard Chartered identifies deposit migration as the primary risk, estimating that U.S. bank deposits could decrease by one-third of the stablecoin market capitalization. This translates to hundreds of billions potentially leaving banking systems as digital dollar alternatives gain adoption.
Q2: Which banks face the greatest exposure to stablecoin competition?
Regional U.S. banks demonstrate the highest vulnerability according to the analysis, particularly institutions like Huntington Bancshares, M&T Bank, Truist Financial, and CFG Bank. These banks face greater risks due to their reliance on deposit-funded lending and net interest margin revenue.
Q3: How does the CLARITY Act affect stablecoin risks to banking systems?
The delayed implementation of the CLARITY Act, which would prohibit interest on stablecoin holdings, creates regulatory uncertainty that allows stablecoins to grow without clear restrictions. Standard Chartered expects the act to pass by Q1 2026, but the interim period increases banking system vulnerabilities.
Q4: What percentage of their reserves do major stablecoin issuers hold in bank deposits?
Tether holds just 0.02% of reserves in bank deposits, while Circle maintains 14.5% in banking institutions. These low percentages mean minimal redepositing occurs, amplifying the net deposit reduction effect on traditional banking systems.
Q5: How do geographic demand patterns influence deposit migration risks?
Approximately two-thirds of stablecoin demand comes from emerging markets, while one-third originates in developed economies. Domestic demand directly drains local bank deposits, while foreign demand typically doesn’t affect domestic banking systems since those funds already reside outside national boundaries.
