SKN | Stablecoins Emerge as a Structural Threat to Bank Deposits, Standard Chartered Warns

Stablecoins are increasingly challenging the traditional banking system, with potential implications for deposit flows, bank profitability, and financial stability, according to a new report from Standard Chartered. As regulatory uncertainty persists in the United States, the bank’s analysts argue that the rapid expansion of dollar-pegged stablecoins could materially erode bank deposit bases—particularly at regional lenders.

The warning comes as the market capitalization of U.S. dollar stablecoins has reached approximately $301 billion, driven by growing adoption across payments, trading, and cross-border transactions. Against this backdrop, the delayed progress of the proposed U.S. CLARITY Act, which would prohibit interest-bearing stablecoins, has renewed debate over whether digital dollars could accelerate deposit outflows from the banking system.

Stablecoin Growth and Deposit Displacement

Geoff Kendrick, Standard Chartered’s global head of digital assets research, estimates that U.S. bank deposits could decline by roughly one-third of total stablecoin market capitalization as adoption expands. In practical terms, this suggests that every $3 increase in stablecoin supply could translate into $1 leaving the banking system.

The core concern lies in the functional similarity between stablecoins and bank deposits, particularly for transactional use. As stablecoins offer instant settlement, global portability, and increasing integration with financial platforms, they are emerging as substitutes for traditional demand deposits—without being subject to the same regulatory constraints.

Regional Banks Face Disproportionate Exposure

Standard Chartered’s analysis highlights net interest margin (NIM) as the most relevant indicator of bank vulnerability. NIM measures the spread between interest earned on assets and interest paid on liabilities, and is heavily dependent on stable deposit funding.

On this basis, regional U.S. banks are the most exposed, as they rely more heavily on deposits for revenue generation compared to diversified or investment banks. Institutions such as Huntington Bancshares, M&T Bank, Truist Financial, and Citizens Financial Group were identified as particularly sensitive to deposit erosion, while large investment banks were deemed least exposed.

Why Stablecoin Reserves Don’t Recycle Into Banks

A key mitigating factor would be stablecoin issuers holding their reserves predominantly in bank deposits, thereby offsetting outflows. However, Standard Chartered’s data suggests this mechanism is largely absent.

Tether holds just 0.02% of its reserves in bank deposits, while Circle holds approximately 14.5%, with the remainder allocated to Treasury bills and other short-term instruments. As a result, deposits converted into stablecoins are not meaningfully redeposited into the banking system, leading to a net contraction in deposit funding.

Global Demand Shifts the Risk Profile

Geographic demand further complicates the picture. Kendrick estimates that around two-thirds of stablecoin usage currently originates in emerging markets, limiting the immediate impact on U.S. and European banks. However, as adoption grows in developed economies, the pressure intensifies.

Assuming a $2 trillion stablecoin market by 2028, Standard Chartered projects that approximately $500 billion in deposits could exit developed-market banks, with an additional $1 trillion potentially leaving emerging-market institutions.

Investor Behavior and Regulatory Outlook

From a behavioral standpoint, stablecoins appeal to users seeking liquidity, yield alternatives, and reduced counterparty risk—especially in an environment of tighter banking regulation and rising digital asset integration. This preference shift reflects a broader trend toward programmable, non-bank financial infrastructure.

Standard Chartered still expects the CLARITY Act to pass by early 2026, but notes that bank-run risks are not limited to stablecoins alone. The expanding tokenization of real-world assets could amplify similar pressures across traditional finance.

As stablecoins move from niche instruments to financial infrastructure, banks face a strategic choice: adapt to coexist with digital dollars or risk gradual disintermediation in the global financial system.