Stablecoins are coming for bank deposits — and traditional lenders aren’t happy about it.

Stablecoins settle instantly, work around the clock, and increasingly offer better returns than traditional savings accounts.

It’s that last point that poses the most risk for banks that rely on customer deposits.

Now, UK-based Standard Chartered has quantified the damage.

Analysts expect roughly $500 billion to leave developed-market banks in the US by the end of 2028, with another $1 trillion to flee emerging-market banks.

That assessment from Geoffrey Kendrick, Standard Chartered’s global head of digital assets research, comes just as the Clarity Act stalls over whether stablecoins should pay yield directly to holders.

As of writing, the draft bill bans digital asset service providers from paying interest to stablecoin holders — a provision that has pitted major banks against Coinbase and other crypto companies, delaying the legislation’s approval.

Here are the four risks outlined by Standard Chartered for US banks.

Difference between loans and deposits

For Kendrick, the clearest measure of risk from stablecoins to banks’ business models comes from the difference between what banks earn on loans and what they pay on deposits.

It’s called the net interest margin income, or NIM.

Banks may pay customers, say, 2% on their deposits, then lend out that money at 5%. The 3% spread is the bank’s profit.

If those deposits leave for stablecoins, that profit disappears, Kendrick said.

Regional US banks are the most vulnerable to this capital flight, with NIM representing up to 80% of total revenue for some institutions.

Investment banks like Goldman Sachs and Morgan Stanley, on the other hand, are less exposed, with NIM comprising less than 30% of their revenue.

Limited redepositing cushion

If stablecoin issuers held their reserves in bank deposits, the outflow would be cushioned.

But they don’t, Kendrick argued.

“The two dominant stablecoin issuers — Tether and Circle — hold just 0.02% and 14.5% of their reserves in bank deposits, respectively, so very little re-depositing is happening," Kendrick said.

Instead, both issuers hold their reserves in US Treasury bills and money market funds.

That means that if users convert $100 to stablecoins, nearly all of that money leaves the traditional banking system entirely, typically flowing into US Treasury bills and money market funds.

Geographic concentration

Roughly one-third of all stablecoin demand comes from developed markets, with the broad majority originating in emerging economies.

And since more than 95% of stablecoins are denominated in US dollars, US banks would bear the brunt of any deposit flight.

Although Australian banks show levels of vulnerability to deposit flight similar to those of US regional banks, the risks to non-US banks remain pretty limited for now, according to Kendrick

Retail versus wholesale

Kendrick explained another problem.

Banks pay lower interest rates on regular customers’ savings accounts because those deposits are insured by the Federal Deposit Insurance Corporation, or FDIC.

But if those customers move their money into stablecoins, banks will have to replace that funding by borrowing from other sources — such as institutional investors — that charge much higher rates.

Even if a bank’s total deposits stay the same, its costs go up.

“Stablecoins are the first big blockchain-based disrupter of financial markets”, concluded Kendrick.