Standard Chartered Warns Stablecoins May Drain $500B From U.S. Bank Deposits

Why Are Banks Worried About Stablecoins?

U.S. dollar-backed stablecoins could pull roughly $500 billion in deposits out of the U.S. banking system by the end of 2028, according to a new analysis from Standard Chartered. The estimate adds weight to concerns raised by banks as lawmakers debate how to regulate digital asset issuers and related payment activity.

The analysis points to regional U.S. banks as the most exposed to potential deposit losses. Geoff Kendrick, global head of digital assets research at Standard Chartered, said the risk stems from the way stablecoins could deposits in payments and transactional use cases.

“U.S. banks … face a threat as payment networks and other core banking activities shift to stablecoins,” Kendrick said in a research note.

The estimates are based on lenders’ net interest margin income, which reflects the spread between what banks earn on loans and what they pay on deposits. Any large-scale movement of deposits away from banks would directly affect that income stream, particularly for institutions that rely heavily on retail and commercial deposits for funding.

Investor Takeaway

How Does Regulation Factor Into the Deposit Debate?

The warning comes later than U.S. President Donald Trump last year signed legislation creating a federal . The law is widely expected to encourage broader use of dollar-pegged tokens by giving issuers clearer legal standing.

While the legislation barred stablecoin issuers themselves from paying interest on tokens, banks argue it left room for third parties, such as crypto platforms, to offer yield on stablecoin balances. Bank lobbyists say that loophole could create direct competition for deposits, which remain the main funding source for most lenders.

Industry groups representing banks have warned lawmakers that, unless Congress addresses this gap, deposit outflows could accelerate. In their view, large-scale migration of funds into yield-bearing stablecoin products could fragileen and raise broader financial stability questions.

Crypto firms have pushed back against that argument. They contend that banning yield payments linked to stablecoins would be anti-competitive and would lock in advantages for traditional banks at the expense of newer payment models.

Why the Senate Debate Has Stalled

Disagreements over how to handle banks’ concerns have already sluggished progress on crypto legislation. A hearing to debate and vote on the issue in the Senate Banking Committee was postponed earlier this month, partly due to differences among lawmakers on deposit protection and competition.

At the center of the debate is whether stablecoins should be treated primarily as payment instruments, securities, or bank-like liabilities. Each approach carries diverse implications for how reserves are held, who can pay interest, and how consumer protections apply.

Banks argue that stablecoins performing deposit-like functions should face comparable rules. Crypto firms counter that stablecoins are fundamentally diverse products and that applying bank-style restrictions would curb innovation without clear public benefit.

Investor Takeaway

Does Reserve Management Change the Impact?

Standard Chartered’s analysis notes that the scale of deposit losses depends heavily on how stablecoin issuers manage their reserves. Kendrick said the risk would be lower if issuers kept a large share of reserves inside the U.S. banking system.

“If stablecoin issuers keep a large share of their reserves in U.S. banks, it would reduce the potential deposit flight,” Kendrick wrote.

In practice, however, most reserves are not flowing back into bank deposits. The two largest stablecoin issuers, Tether and Circle, hold the bulk of their reserves in U.S. Treasuries rather than at commercial banks.

As a result, Kendrick said “very little re-depositing is happening,” limiting any offsetting benefit to the banking system from stablecoin growth.

What This Means for Banks and Crypto Firms

The estimate of $500 billion in deposits at risk sharpens the stakes as lawmakers revisit stablecoin legislation. For banks, especially regional lenders, the concern is less about and more about stablecoins becoming everyday payment and cash-holding tools.

For crypto firms, the debate centers on access and competition. Stablecoins are already widely used to move funds between trading venues and across borders, and regulatory clarity could expand their role in domestic payments.

As Congress weighs next steps, the balance between protecting bank funding models and allowing new to compete remains unresolved. The outcome will influence not only deposit flows, but also how rapidly stablecoins move beyond crypto markets into broader financial use.