Why Stablecoins Could Be the Hidden Force Reshaping Bank Stocks

The U.S. Senate is getting ready to vote on a bill called the Genius Act. On the surface, it sounds like a simple step to regulate stablecoins — digital tokens pegged to real-world currencies like the U.S. dollar. But this could end up doing a lot more than just giving crypto a legal framework.

Let’s take a step back. A stablecoin is a type of cryptocurrency that is supposed to be fully backed by fiat money. You hand over one dollar, and you get one token in return. That token is backed by actual dollars or short-term U.S. Treasury securities held in reserve. Sounds pretty safe, right?

Well, maybe too safe for comfort — especially for banks.

The money doesn’t disappear but it moves in a different way

Stablecoins don’t create new money. They simply move existing money into new places.

When someone buys a stablecoin, their cash goes into a reserve account managed by the stablecoin issuer. That money might then be held in a bank, used to buy U.S. Treasuries, or placed into short-term repurchase agreements — basically overnight loans between financial institutions. These are all common practices in traditional money market funds.

So the banking system doesn’t necessarily lose liquidity. But it does lose something else: control. Because instead of being spread across many small, stable retail deposit accounts, the money ends up concentrated in a few large institutional pools. That’s where the trouble can start.

From many small deposits to a few big ones and the risk changes

Banks love retail deposits — small, steady, and predictable. When regular people put a few thousand dollars into checking or savings accounts, that becomes a reliable and cheap source of funding for banks to make loans.

But if those same people start converting their deposits into stablecoins, the money leaves traditional retail accounts and ends up in massive reserve pools controlled by just a few big players. These pools usually don’t fund loans — they invest in short-term, low-risk assets like Treasuries or repo deals.

As a result, banks are left with fewer cheap, sticky deposits and more expensive, volatile funding. If something shakes market confidence or causes rapid withdrawals, banks could face serious liquidity pressure — or worse, a financial panic.

We already got a taste of this in the 2023 banking crisis

Remember the Silicon Valley Bank collapse in 2023? One of the triggers was the concentration of large, uninsured deposits. Among the depositors was Circle, the company that issues the USDC stablecoin. Circle had over $3 billion sitting at SVB and tried to move it out — but didn’t make it before regulators stepped in.

The impact was immediate: USDC briefly lost its peg to the dollar, trading below $1 on some exchanges. It wasn’t until the U.S. government stepped in and guaranteed all SVB deposits that the panic subsided.

This showed how quickly concentrated institutional money can destabilize not just banks, but the broader financial system — especially when the money is tied to something the public treats as cash-like and stable.

In the end the big banks could win again

There’s a twist. Even though stablecoins are often talked about as a decentralized alternative to traditional finance, the reality is that most of the reserves end up at a handful of too-big-to-fail banks.

Circle has publicly said that most of its cash is held at major systemically important banks like JPMorgan Chase $JPM , Citigroup $C , Bank of America $BAC , and Wells Fargo $WFC .

And here’s the kicker — what if these same big banks start issuing stablecoins themselves? That’s not far-fetched. Reports suggest some are already exploring the idea. If that happens, we may end up with even more centralization, not less.

You might think you’re using a decentralized digital dollar, but you’re actually just using a more tech-savvy version of traditional banking — powered by the biggest players in the game.

Higher yields more competition and pressure on smaller banks

There’s another trend worth watching: stablecoins and tokenized government securities are starting to offer attractive yields. That means people may have more ways to earn interest on their money outside of traditional bank accounts.

To compete, banks may be forced to raise deposit rates — which large banks can afford to do. But what about the small ones?

If stablecoins go mainstream for everyday payments and savings, small and regional banks could face a perfect storm: customers pulling out deposits, profit margins getting squeezed, and rising costs to attract new money.

Here’s how I see it

1. Stablecoins aren’t inherently bad. They do make payments faster and could help expand access to financial services. But they’re also quietly rebuilding the foundations of the financial system, and that comes with risks.

2. The real danger is in the centralization of funds. Traditional finance relies on distributed trust. Stablecoins concentrate trust in a few key institutions, which increases systemic fragility.

3. Big banks could end up as the winners. Smaller banks that don’t have the infrastructure or scale to play in the stablecoin world might get left behind.

4. Regulation is absolutely necessary. But setting up a framework isn’t enough. What matters most is tracking how money moves behind the scenes and managing the risks that come from growing concentration.

Final thoughts

Stablecoins may be making the financial system faster and more open. But in the process, they could be quietly weakening the very mechanisms that have kept that system stable for decades.

This isn’t a story about stablecoins destroying banks. It’s about how banks will have to reshape themselves to stabilize stablecoins.

Follow me to keep digging into how crypto and traditional finance are colliding in ways no one is fully ready for.