U.S. Regional Banks Face $500 Billion Stablecoin Risk, Standard Chartered Warns

Standard Chartered has issued a warning that U.S. regional banks are at the greatest risk from the growing stablecoin market. The bank attributes this vulnerability to their heavy reliance on net interest margin (NIM), a key profitability metric. This is because stablecoin adoption could draw deposits away from traditional banking systems, directly impacting NIM.

The investment bank estimates that as much as $500 billion in developed market bank deposits could flow into stablecoins by 2028. This shift is expected to be driven by the increasing appeal of digital assets that offer yield-bearing options, which are more attractive than traditional deposit rates.

Regional banks, such as Huntington Bancshares and M&T Bank, are more exposed to this risk than larger diversified banks or investment firms. This is due to their higher dependence on NIM for revenue.

Standard Chartered's analysis highlights that stablecoins are moving beyond emerging markets to threaten the core of the U.S. banking system. As digital payment rails and cross-border settlement tools, stablecoins are increasingly challenging the dominance of traditional banks.

Legislative uncertainty is currently stalling progress on market structure reform. A key issue is whether stablecoin providers can offer interest-bearing options. While the bill is expected to pass by late Q1 2026, the delay has masked the true scale of the threat posed by stablecoins.

Tether and Circle, two major stablecoin issuers, hold only 0.02% and 14.5% of their reserves in bank deposits, respectively. This minimal re-depositing means that when a deposit leaves a bank to go into a stablecoin, it is unlikely to return, resulting in a net reduction in bank deposits.

Domestic demand for stablecoins is a greater threat to U.S. banks than foreign demand. Regional banks, which often serve local communities, may face significant deposit substitution as younger, more tech-savvy populations opt for digital alternatives.

Why Did This Happen?

Standard Chartered identified NIM as a critical vulnerability for U.S. regional banks. This metric is directly impacted by the flow of deposits, which are now being drawn away by the appeal of yield-bearing stablecoins. As a result, the bank's profitability is at risk.

The bank’s analysis suggests that if a stablecoin's reserves are held in bank deposits, the impact on traditional banking systems is lessened. However, major issuers like Tether and Circle are not currently doing this, making the threat more immediate.

The current regulatory bottleneck in Washington is not just about the legislation itself, but about the broader implications for the U.S. banking core. If stablecoins can pay interest, they could further erode traditional bank revenues by drawing away deposits.

What Are Analysts Watching Next?

Analysts are closely watching how the U.S. CLARITY Act will ultimately be structured. The bill's prohibition of interest on stablecoins is a point of contention, with big banks supporting it and crypto firms like Coinbase warning it could stifle the industry.

Standard Chartered anticipates that despite the current legislative impasse, the bill will pass by late Q1 2026. This outcome would mark a critical step in shaping the future of the stablecoin market and its impact on traditional banking.

Regional banks, which are already facing pressure from deposit outflows, may need to adapt quickly to the changing landscape. The rise of stablecoins could force these banks to rethink their strategies to remain competitive in a digital economy.

The broader implications for the U.S. banking system could be significant. If stablecoins continue to grow at their current pace, traditional banks may see a fundamental shift in how they operate and generate revenue. This could lead to a restructuring of the banking sector and a reallocation of financial resources.

What Are the Market Implications?

The rise of stablecoins is not just a concern for U.S. banks but has global implications. As the stablecoin market expands, it could reshape how financial transactions are conducted and how assets are stored and transferred.

The potential for stablecoins to offer higher returns than traditional savings accounts makes them particularly appealing to younger investors. This demographic is more likely to adopt digital solutions and less tied to traditional banking systems.

For now, the focus remains on how the U.S. banking system will adapt to this evolving threat. The legislative outcome in Washington will be a key factor in determining the future landscape of stablecoins and their impact on traditional banks.