Stablecoins Are a Bigger Threat to US Banks Than Regulators Admit: Standard Chartered

Standard Chartered (SC) has issued a strong warning regarding the existential threat posed by well-adopted, regulated stablecoins to the profitability and stability of the traditional US commercial banking system. The bank argues that current regulatory frameworks significantly underestimate the speed and magnitude of potential deposit flight.

SC identifies the core mechanism of the threat as the inherent superiority of stablecoins—such as USDP or USDC, particularly if they are backed by high-quality liquid assets and subject to robust regulatory oversight—as near-perfect substitutes for low or zero-interest bank deposits. These digital alternatives offer enhanced utility, instant settlement capabilities, and, crucially, potentially reduced counterparty risk compared to traditional commercial bank accounts.

The report posits that widespread public adoption of these digital currencies could trigger a rapid and large-scale disintermediation, leading to the erosion of banks’ lowest-cost funding source: non-interest-bearing deposits. The loss of these stable deposits would force banks to rely heavily on more expensive wholesale funding markets, inevitably compressing Net Interest Margins (NIMs) and restricting overall credit supply.

Unlike traditional interbank competition, the digital nature of stablecoin transfers facilitates instantaneous migration, accelerating the potential for systemic instability. Standard Chartered cautions that this structural shift represents a more pressing threat than issues concerning stablecoin asset backing, which have typically dominated regulatory focus.

Standard Chartered recommends that regulators, including the Federal Reserve and the Office of the Comptroller of the Currency (OCC), should shift their focus from mere consumer protection to proactively mitigating the systemic risks posed by deposit vulnerability. Failure to adapt the banking model or introduce effective measures could fundamentally destabilize the traditional deposit-to-lending cycle foundational to the US economy.

Source: Stablecoins Are a Bigger Threat to US Banks Than Regulators Admit: Standard Chartered