A comprehensive financial analysis released on Tuesday, January 27, 2026, by Standard Chartered has projected a significant transformation in the American banking landscape, suggesting that dollar-backed cryptocurrencies, or “stablecoins,” could drain approximately $500 billion in deposits from the United States banking system by the conclusion of 2028. This forecast, authored by Geoff Kendrick, the global head of digital assets research at the institution, is predicated on the increasing structural risk that these tokenized cash equivalents pose to traditional financial (TradFi) models. The report suggests that as payment networks and essential banking activities continue to migrate toward blockchain infrastructure, the primary funding source for domestic lenders—low-cost customer deposits—will face unprecedented competition from digital alternatives.
The vulnerability of the banking sector is being assessed through the lens of net interest margin (NIM) income, a fundamental profitability metric representing the variance between the interest earned on loans and the interest paid out to depositors. It has been observed that regional US banks, including institutions such as Huntington Bancshares, M&T Bank, and Truist Financial, are disproportionately exposed to this capital flight. Unlike diversified global giants like JPMorgan Chase, these regional lenders rely more heavily on interest income as a percentage of total revenue. As stablecoins evolve from niche trading tools into mainstream conduits for cross-border settlements and everyday commerce, the resulting erosion of the deposit base could compress these margins, thereby increasing risk exposure and rendering bank liabilities more expensive and unstable.
The catalyst for this shift is widely identified as the legislative framework established by the GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins), which was signed into law in late 2025. While this landmark legislation created a federal regulatory environment that dismissed risky algorithmic tokens in favor of 1:1 dollar-backed assets, it has simultaneously ignited a fierce dispute between banking lobbyists and the cryptocurrency industry. Although the Act prohibits stablecoin issuers from directly paying interest to holders, a perceived “loophole” has been identified that allows third-party intermediaries—such as crypto exchanges and decentralized finance (DeFi) platforms—to offer yield-like rewards on these tokens. Banking representatives have argued that unless this regulatory gap is closed, the industry will witness a massive exodus of deposits, potentially compromising national financial stability.
The potential for systemic risk is further amplified by the current reserve management strategies of major stablecoin issuers such as Tether and Circle. It was noted in the Standard Chartered research that very little “re-depositing” is occurring within the traditional banking system. Currently, the dominant issuers hold the vast majority of their reserves in US Treasuries rather than in bank deposits; for instance, Tether reportedly maintains only 0.02% of its reserves within traditional bank accounts. Consequently, when capital exits a bank to purchase a stablecoin, that liquidity is effectively removed from the commercial banking circuit and redirected toward the government securities market. This transformation turns bank depositors—who traditionally fund local economic growth and credit—into funders of government debt, a shift that could lead to a permanent reduction in the availability of bank credit for the real economy.
Crypto companies have responded to these concerns by characterizing the banks’ stance as anti-competitive, asserting that the ability to offer yields on digital assets is necessary for customer retention and market innovation. It has been argued by proponents of the technology that stablecoins coexist with traditional banking in the same manner as government money market funds, providing a 24/7 liquid alternative without inherently threatening the broader credit markets. Despite these counterarguments, the Senate Banking Committee recently postponed a critical hearing on the matter, reflecting a deep-seated disagreement among lawmakers on how to address the banks’ fears of a parallel, unregulated banking system.
The scale of this migration is expected to be part of a broader global trend. While the US is projected to lose $500 billion, emerging markets are anticipated to see an even greater shift, with as much as $1 trillion potentially exiting local banks in favor of digital dollars. This disparity is driven by the demand for a stable, liquid alternative to volatile local currencies. As the stablecoin market is forecasted to triple in value to approach $2 trillion by 2028, the resilience of traditional financial institutions will likely depend on their ability to integrate with tokenized infrastructure rather than simply opposing its growth.
Ultimately, the findings by Standard Chartered underscore a looming structural challenge for the fractional-reserve banking system. As digital assets become increasingly indistinguishable from traditional cash in terms of utility, the competition for the world’s “savings” will only intensify. The outcome of the ongoing legislative battle in Washington will dictate whether banks are permitted to evolve alongside these digital competitors or if they will face a prolonged period of deposit attrition that reshapes the foundations of American finance.
