The Rise of Stablecoins Could Endanger Bank Deposits by $500 Billion
Standard Chartered cautions that the increasing acceptance of stablecoins might lead to significant withdrawals from banks, jeopardizing their net interest margins.
The Rise of Stablecoins Could Endanger Bank Deposits by $500 Billion
Standard Chartered has raised alarms about the potential for stablecoins to siphon as much as $500 billion from bank deposits in developed markets by 2028.
Growing Risk to Traditional Banks
U.S. banks are at increasing risk of losing deposits to the rise of digital assets, particularly as stablecoins gain traction. The total supply of stablecoins has surged by 40% over the past year, now exceeding $300 billion.
Concerns About Long-term Funding
A report by Bloomberg, featuring insights from Geoff Kendrick, states that the rise of stablecoins could lead to deposit exits of up to $500 billion from banks in industrialized nations by 2028. Kendrick indicates that banks in the U.S. could see deposits diminish by about one-third of the stablecoin market capitalization. The evolution of stablecoins may quicken due to legislative changes such as the Clarity Act aimed at regulating the digital asset sector.
“U.S. banks also face a threat as payment networks and other core banking activities shift to stablecoins,” he wrote.
“The bank lobbying groups and bank associations are out there trying to ban their competition,” said Brian Armstrong, CEO of Coinbase, at the World Economic Forum. “I have zero tolerance for that; I think it’s un-American, and it harms consumers.”
The pending legislation is expected to alter the landscape by the end of the first quarter. Companies like Tether and Circle hold a mere fraction of their reserves in bank deposits, implying minimal re-depositing actions and increased threats to banks.
Regional Lenders May Be Most Affected
Analysis suggests regional banks in the U.S. are more vulnerable than their larger counterparts. They depend more significantly on traditional lending activities compared to diversified firms and investment banks. Statistically, Huntington Bancshares, M&T Bank, Truist Financial, and Citizens Financial Group are among the most exposed.
Despite short-term performance indicators, such as a 6% increase in the KBW Regional Banking Index this January, Kendrick anticipates a long-term shift in capital dynamics due to stablecoins.
“An individual bank’s actual exposure to a stablecoin-driven reduction in NIM income will depend largely on its own response to the threat,” he stated.
