Stablecoin growth poses a conditional risk to U.S. banks, S&P says
S&P Global Ratings this week published a Credit FAQ detailing how broader use of U.S. dollar-pegged stablecoins could alter the economics of the U.S. banking sector. The analysis, focused on stablecoins that would operate under the GENIUS Act framework, finds that while the current threat to domestic deposits and payment rails is limited, regulatory and market shifts could change that picture materially.
The report’s evidence base: stablecoin issuance exceeded $300 billion as of May 2026, with the two largest issuers accounting for roughly 85%–90% of the total. Most dollar-backed demand today originates outside the U.S., and stablecoins remain heavily concentrated in crypto trading and settlement. Still, S&P flags several scenarios under which stablecoins could become a more direct competitor to banks for payment fees and deposit balances.
How stablecoins could affect banks’ revenue and funding
S&P identifies three primary channels by which stablecoins could influence banks. First, competition for payment flows: as stablecoins are used for merchant remittances or commercial payments, banks could lose fee income that contributes to noninterest revenue. Second, deposit composition: funds converted into stablecoins can change the mix between retail and wholesale deposits, raising funding volatility if holdings concentrate in larger, uninsured balances. Third, lending capacity and pricing: if deposit elasticities change or deposit yields rise to retain customers, banks could face margin pressure and higher funding costs, which would feed into loan pricing.
Reserve management is pivotal. Whether stablecoin issuers hold reserves as bank deposits, Treasuries or money-market instruments will determine where flows ultimately land. If reserves are primarily bank deposits, overall system deposits could be preserved even as individual banks lose share. If reserves sit in Treasuries or at the Fed via so-called “skinny” master accounts, the banking system could see a net outflow of deposits.
Regulatory guardrails will shape outcomes
The GENIUS Act, enacted in July 2025, created a statutory pathway for permitted payment stablecoin issuers and set strict requirements, including a 1:1 reserve ratio denominated in highly liquid assets, segregated accounts and prohibition on rehypothecation. Important implementation details remain under rulemaking by agencies such as the OCC and the FDIC. Proposed rules address licensing, reserve composition, governance, transparency and capital requirements.
Two provisions stand out as particularly consequential for banks. The first is the statutory ban on paying interest directly to stablecoin holders; the second is how regulators treat “pass-through” deposit insurance for reserves held at banks. S&P notes that even with a direct interest ban, economic incentives may still be routed indirectly — for example, through exchange fees or third-party arrangements — complicating the competitive landscape.
Risks highlighted by S&P
S&P’s FAQ lists practical risks regulators and banks must weigh. Rapid redemption pressures could force issuers to liquidate reserves at inopportune times, while nonbank issuers lack central-bank access to liquidity. There are also monetary policy considerations: a larger role for privately issued dollar-like tokens could complicate interest rate transmission. Consumer protection is another area of concern; stablecoins do not carry deposit insurance and holders may be exposed to counterparty or operational risks.
S&P recalls precedents where market stress impacted stablecoins — including a price shock to a major dollar token after a U.S. regional bank failure — underscoring the need for liquidity and redemption safeguards.
How banks are responding and what could mitigate downside
Many banks have not issued stablecoins but are experimenting with tokenized deposit products and pilot projects. Examples include bank-led pilots on public blockchains and state-level initiatives. S&P argues that banks which integrate tokenization and programmable payment features into regulated deposit products will be better positioned to retain client relationships and revenue streams.
Tokenized deposits differ from stablecoins. They remain within the regulated banking perimeter, carry existing liquidity frameworks and—where eligible—FDIC coverage. That regulatory alignment reduces certain systemic risks but limits fungibility with permissionless ecosystems that large public stablecoins currently serve.
Implications for investors and ratings
At present S&P does not incorporate stablecoin risks into bank ratings broadly, citing the early stage of adoption and the continued dominance of traditional deposits. However, the agency warns it will monitor developments closely: idiosyncratic deposit outflows or higher funding costs at individual banks could prompt rating actions. Conversely, banks that capture new business from stablecoin custody, issuance or settlement services could benefit.
Bottom line
S&P’s FAQ frames stablecoins as a technology and market development whose ultimate effect on U.S. banks depends on three levers: issuer behaviour, reserve composition, and regulatory implementation. With the GENIUS Act in place but agency rules and complementary legislation still being finalised, the near-term balance of risks and opportunities remains unsettled. For banks, the prudent course is to accelerate experimentation within compliance boundaries and to prepare funding and liquidity plans for scenarios that shift deposit composition or payment flows.
For policymakers, the trade-off is clear: rules must allow innovation that improves payment efficiency while limiting risks from liquidity mismatches, redemption runs and fragmentation of prudential safeguards.
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