Stablecoin Surge: Banks Face Trillions in Deposit Risk & The Urgent Need for a New Strategy

The financial landscape is rapidly shifting, catching many traditional banking institutions off guard. The recent passage of the GENIUS Act has propelled stablecoins into the mainstream, creating an urgent dilemma for banks: adapt or risk losing a substantial portion of their core funding.

Industry lobbyists are now frantically working to address a perceived loophole in the new legislation, fearing it could significantly drain deposits from conventional banking systems. Meanwhile, bankers grapple with how to proactively or defensively integrate the stablecoin concept into their operations.

The Tremendous Stakes for Traditional Banking

The potential financial impact of stablecoins is far from theoretical. A 2025 report from the Trump Treasury Department, preceding the GENIUS Act, starkly highlighted the magnitude:

• A staggering $6.6 trillion in non-interest-bearing transactional deposits — roughly one-third of all deposits held by U.S. commercial banks — are identified as being at risk.

Accenture’s “Top Banking Trends 2026” report corroborates this, pointing to trends already observed in international markets like Argentina. The report warns, “If this shift scales, it could displace traditional deposits, strain funding and lending capacity and weaken monetary effectiveness.” It further emphasizes the unsustainability of the traditional model where banks have long benefited from stable, low-yield deposits due to customer inertia.

Key Developments & Market Dynamics

Several critical factors are shaping the stablecoin debate and its implications for financial institutions:

• The ongoing legislative debate in Washington concerning quasi-interest payments on stablecoin deposits, a point the banking lobby believed was settled by the GENIUS Act.
• Platforms like Coinbase continue to offer “rewards” on stablecoin holdings, with USDC, a “crypto held to a higher standard” under the Act, potentially yielding returns as high as 3.5%.
• A consortium of banking associations has voiced strong opposition, stating in a letter to the Senate that “Policies that undermine bank and credit union deposits destroy local lending.”
• Experts agree that commercial deposits are likely to be impacted sooner than retail, as low-cost business demand deposit accounts have been a foundational funding source for decades.
• International transactions are predicted to be the initial point of stablecoin adoption, with experts noting the steeper adoption curves seen today across various technologies.
• New competition is emerging, including crypto-native institutions like Erebor, with deep tech expertise, and hybrid bank-fintechs such as SoFi, well-positioned to leverage digital assets.

An Industry Navigating Uncharted Waters

“What we’re witnessing is large banks innovating, while community banks are intensely advocating to safeguard their deposit base,” notes Duane Block, managing director for digital assets at Accenture.

The coming months are pivotal, as the question of “interest” on stablecoins is expected to be resolved. This resolution, Block explains, “will reveal whether there’s a real revenue-generating opportunity or whether this will be a defensive paradigm shift.”

The rapid evolution in this space, including unprecedented regulatory collaboration following the President’s working group report, highlights the swift pace of change.

Despite the economic drivers, the enduring power of customer relationships remains a question. Block ponders whether money will move solely based on stablecoin offerings, suggesting that long-standing relationships with local banks might mitigate some outflows.

Strategic Options for Banks: What Comes Next?

Beyond the largest institutions and specialized crypto banks, many financial players are still searching for a clear stablecoin strategy. Chris Dean, CEO of Treasury Prime, describes a common sentiment: banks feel an urgent need to act but are “stuck” on specific actions.

Dean outlines three primary avenues banks can explore:

1. Develop a Proprietary Stablecoin or Tokenized Deposit: This ambitious path could be undertaken individually or via consortiums. While individual development might be out of reach for most, consortium approaches offer a more feasible, albeit still challenging, alternative. Dean cautions that career regulators remain vigilant regarding compliance, safety, soundness, and money laundering risks associated with stablecoins.
2. Transition to a Specialized Crypto Bank: While niche specialization seems appealing, this represents a significant undertaking. Established players like Erebor and Cross River Bank already possess deep expertise and market integration, making entry challenging for newcomers.
3. Offer “Pay In, Pay Out” Services: This practical approach involves providing customers with a bank-backed on/off ramp, allowing them to move funds between traditional deposits and the stablecoin ecosystem for payments. This strategy helps keep funds within the bank’s system until needed for external payments, acting as a crucial link to the stablecoin world, similar to existing wire, ACH, and instant payment channels like FedNow and The Clearing House RTP.

Tony DeSanctis, senior director at Cornerstone Advisors, highlights the utility for businesses engaged in international trade, citing a firm’s preference for PayPal’s stablecoin due to its flexibility in currency conversion for offshore inventory purchases.

Duane Block further suggests other specialized banking roles, such as becoming a stablecoin custodian, which may become clearer once Congress finalizes the pending CLARITY Act (Digital Asset Market Clarity Legislation for Asset Regulation, Innovation, and Trading Yields Act).

Retail Adoption: A Slower Trajectory?

Current consensus suggests stablecoins hold more immediate appeal for businesses, particularly for international payments, than for retail consumers. Designed for stability and backed by U.S. Treasury securities or actual dollars under GENIUS, stablecoins are ideal for cross-border transactions, especially in regions with less stable local currencies.

“On the retail side, the volume is incredibly small,” states Dean, acknowledging that while a tech enthusiast might envision paying for lunch with stablecoins, the broader consumer market isn’t there yet.

Lily Varon, a principal analyst at Forrester, points to existing consumer concerns: clunky user experiences and the apprehension of losing access to funds in “self-custody” stablecoin wallets. Forrester’s annual payments forecast for 2026 predicted no scalable retail stablecoin use case, also noting that “For merchants, processor costs and integration challenges often negate any promised fee savings.”

Michael Abbott, senior managing director and global banking lead at Accenture, echoes this sentiment: “Stablecoins are not going to be an issue for the consumer side… Your paychecks are not going to go into stablecoins.” However, he concedes that stablecoins could evolve into a mechanism facilitating rapid fund movement out of traditional banks, especially with the rise of agentic AI for deposit optimization.

An exception lies in international remittances, where DeSanctis sees stablecoins augmenting existing services. Western Union’s announcement of its U.S. Dollar Payment Token last fall exemplifies this trend.

Intriguingly, the rapid rise of stablecoins also raises a nagging question: could they, in their efficiency, inadvertently facilitate future bank runs, reminiscent of recent regional banking crises?

Source: thefinancialbrand.com