A new financial stability warning from Standard Chartered cautions that U.S. banks could lose up to $500 billion in deposits as stablecoins gain mainstream traction. The analysis singles out regional banks as the most vulnerable, facing severe pressure on their primary funding source. This looming threat has ignited a fierce lobbying battle in Washington, stalling critical crypto legislation as banks and digital asset firms clash over the future of financial competition.
Geoff Kendrick, Global Head of Digital Assets Research at Standard Chartered, authored the report highlighting the systemic risk. His research calculates the potential impact based on banks’ net interest margin income—the profit engine fueled by deposits. Kendrick warns that as payment networks and core banking activities migrate to blockchain-based stablecoins; traditional lenders face an unprecedented competitive challenge. The projected $500 billion outflow represents a seismic shift that could destabilize the sector.
This clash centers on a regulatory loophole in the federal stablecoin framework signed into law last year. While the law prohibits stablecoin issuers from paying interest, banks contend it allows third-party crypto exchanges to offer yields on these digital dollars. Banking lobbyists are urgently pressing Congress to close this gap, arguing that failure to do so will trigger a massive exodus of deposits, directly threatening financial stability. They frame the issue as a matter of safeguarding the traditional banking system from unregulated competitors.
Crypto industry advocates forcefully counter that banks are seeking anti-competitive protections. They argue that barring yield on stablecoins would stifle innovation and consumer choice in the emerging digital asset ecosystem. Proponents highlight the utility of stablecoins for instant, global payments, even as their primary current use is for trading other cryptocurrencies like Bitcoin. This fundamental disagreement recently led to the postponement of a key Senate Banking Committee hearing, leaving critical legislation in limbo.
The standoff in Congress underscores a pivotal moment for the U.S. financial landscape. As the stablecoin market grows under its new regulatory framework, the tension between protecting established banks and fostering fintech innovation is reaching a boiling point. The outcome will determine whether traditional institutions can coexist with disruptive digital asset networks or face a sustained and costly battle for the very deposits that underpin their business.
