Banks warn stablecoins threaten deposits

Banks are warning that stablecoins could trigger a form of deposit flight from the traditional banking system, but regulators and policy experts say there is little evidence of that risk materialising so far.

Standard Chartered estimated that US bank deposits could fall by around one-third of the stablecoin market capitalisation, which currently stands at about $308 billion, intensifying debate as US lawmakers consider restricting yield-bearing stablecoins under the proposed CLARITY Act.

“You will find little evidence that stablecoins have drained bank deposits,”

Said Aaron Klein, senior fellow in economic studies at the Brookings Institution, noting that most usage remains tied to crypto markets and store-of-value needs outside the US.

European regulators echoed that view, with a European Banking Authority representative saying:

“Because of low engagement in use of stablecoins currently within the EU, we do not see current currency substitution, capital flight or dollarisation risks.”

Klein cautioned that risks could emerge if stablecoins scale significantly, as reduced bank deposits would constrain lending and the supply of credit across the financial system.