Stablecoins: The Catalyst for a Potential $500 Billion Deposit Flight from U.S. Banks

Stablecoins, digital tokens backed by the U.S. dollar, could lead to $500 billion in U.S. bank deposit withdrawals by 2028, according to Standard Chartered. Legislation around stablecoins remains contentious, with banks fearing competition over deposits. This debate could shape the future regulatory landscape for digital assets.

Stablecoins, digital tokens pegged to the U.S. dollar, are projected to siphon off around $500 billion in deposits from U.S. banks by the end of 2028, as predicted by Standard Chartered.

This analysis raises the stakes in the ongoing battle between banks and crypto companies over digital asset regulation. Regional U.S. banks would be particularly vulnerable to these losses, according to Geoff Kendrick, global head of digital assets research at Standard Chartered, who highlighted the impact on lenders' net interest margins.

The U.S. government has attempted to regulate these assets, with a law signed by President Donald Trump last year creating a federal framework for stablecoins. While proponents argue for their efficiency in transactions, banks fear new competition for deposits due to a legislative loophole allowing third parties to pay yield on stablecoins. The Senate Banking Committee's planned deliberation on crypto legislation was postponed recently amid such controversies.

(With inputs from agencies.)