U.S. banks are facing a growing worry. More people are moving money into stablecoins, a kind of digital money that tries to keep its value steady. This shift could mean banks lose deposits from customers over time.
What is a stablecoin? It is a stablecoin, a type of cryptocurrency that aims to keep its value close to a real asset such as the U.S. dollar. To do this, stablecoins use reserves or computer rules to stay stable. They are not always perfectly stable, but the goal is to avoid big moves in value.
One widely used stablecoin is USDC. USDC is issued by Circle and is meant to be worth one U.S. dollar. It runs on common blockchain technology, and its reserves are checked by auditors. USDC has become a popular choice for payments and other crypto activities.
Another major stablecoin is Tether. Tether is also tied to the U.S. dollar. It is widely used, but people have followed questions about how much real money backs it and how transparent those reserves are.
The amount of stablecoins in circulation has grown a lot. In the last year it rose about 40%, reaching just over $300 billion in total. This big rise is helping these digital coins become more common in everyday money use.
A Bloomberg report, using research from Geoff Kendrick (global head of crypto research at Standard Chartered), says stablecoins could cause as much as $500 billion in deposits to leave banks in developed countries by the end of 2028. In the United States alone, Kendrick estimates that bank deposits could fall by roughly one-third of the entire stablecoin market size.
Kendrick also thinks the pace of stablecoin growth could speed up after the Clarity Act moves through Congress. This piece of legislation is meant to regulate the digital asset industry. He writes that U.S. banks face another danger because payments and other core banking activities could move to stablecoins.
One of the biggest public disagreements between traditional banks and crypto companies is whether stablecoin holders should be allowed to earn rewards that look like interest. For example, Coinbase currently offers about 3.5% rewards on balances held in Circle’s USDC. Bank lobbying groups argue that such rewards could speed up the loss of deposits if they are allowed to continue.
At the World Economic Forum in Davos last week, Coinbase’s chief executive officer, Brian Armstrong, commented on this debate. He criticized attempts to ban these rewards, calling such moves un-American and saying they hurt consumers.
Despite the disputes, Kendrick expects the broader crypto market structure bill to be approved by the end of the first quarter of the year. This would set more formal rules for how the crypto market should work in the United States.
Which banks could be most at risk?
To figure out which banks might face the biggest risk, Kendrick looked at a metric called net interest margin (NIM). Net interest margin (NIM) is a simple way to see how much money a bank makes from loans while paying for deposits. It is usually shown as a percentage. Kendrick used NIM as a share of total revenue to find which banks would feel the most pressure if deposits moved to stablecoins. He found that regional U.S. banks look more exposed than larger, more diversified lenders and investment banks, which are seen as less exposed.
- Huntington Bancshares
- M&T Bank
- Truist Financial
- Citizens Financial Group
Among nineteen U.S. banks and brokerages studied, these four were identified as having the highest risk of losing deposits to stablecoins because they rely more on traditional lending and have higher NIM exposure. Local and regional banks can be more sensitive to outflows because they depend more on customer deposits for lending than bigger national banks.
In the short term, the market has shown some signs of resilience. The KBW Regional Banking Index rose about 6% in January, while the broader market index moved a bit more slowly. Some experts believe that if the Federal Reserve cuts interest rates later, banks could lower the cost of deposits, which might help protect profits. Government actions to stimulate the economy could also help by supporting loan growth.
Still, Kendrick says the long-term trend is largely unavoidable. He notes that an individual bank’s actual exposure to a stablecoin-driven drop in NIM income will depend a lot on how that bank responds to the threat. If a bank changes its business model or its approach to deposits, it could reduce its risk. If not, the risk could stay high.
Another part of the story is about the reserves held by stablecoin issuers. The two dominant issuers, Tether and Circle, hold only a very small portion of their reserves as bank deposits. Kendrick notes that 0.02% of Tether’s reserves are in bank deposits, and Circle has about 14.5% of its reserves held there. He says this means there is not much re-depositing happening from those reserves.
Overall, the story shows a big shift in how money can flow between traditional banks and new digital money. It emphasizes both opportunities and risks for U.S. banks as stablecoins become more common in everyday finance.