Are Stablecoins Threatening the Banking Industry? - The Survival Test for Traditional Finance Under the GENIUS Act

#Stablecoins #GENIUS #Trump

Banks, the oldest players in the financial market and once considered the unshakable “giants” of finance — I believe that used to be everyone’s consensus. They were like old aristocrats in the city, holding power over deposits, loans, and wealth management. For two centuries, no emerging force has truly challenged their dominance. But with the rise of stablecoins, for the first time, banks are feeling that blockchain is “digging under their foundations.”

The current picture looks like a play on stage: on one side, bankers in suits holding lobbying papers, shouting in Washington’s hearing rooms; on the other side, the new blockchain elites and stablecoin issuers, backed by technology and capital, rewriting the rules of financial survival. And the GENIUS Act’s enactment is like the director suddenly dropping a “bomb,” bringing the conflict into full view.

Why Banks Are Anxious: Starting with the GENIUS Act

This law, which took effect in the U.S. less than a month ago, was originally meant to put a leash on the “wild growth” of the stablecoin market. It requires that stablecoins must be backed by highly liquid safe assets, especially short-term U.S. Treasuries. On the surface, this protects investors and prevents “air coins” from blowing up. But in reality, it also opens the door for stablecoins to expand.

According to Standard Chartered and U.S. Treasury Secretary Bessent’s forecast, under the framework of the GENIUS Act, the stablecoin market could surge to $2 trillion by 2028. In a sense, stablecoins are shifting from “speculative toys” to becoming the “VIP buyers of the U.S. Treasury.”

The logic is simple but brutal: stablecoin issuers absorb dollar capital, pour it into Treasuries, and pocket the interest income.

The problem? This model directly conflicts with banks’ core business.

Banks’ Fear: Their Foundations Are Being Eroded

When 52 banks, lobbying groups, and consumer organizations co-signed a letter to the Senate Banking Committee calling to revise the GENIUS Act, their demand was simple: don’t marginalize us in our own backyard.

What banks fear most is deposit outflows. In the traditional financial pyramid, the bank’s model is:

absorb low-cost deposits →issue loans to earn spreads.

Deposits are the “lifeblood” of banks. Without them, loans can’t expand, and interest margin profits dry up. But stablecoins are quietly building a new upstream diversion channel.

Picture this future scenario for an ordinary American user:

Put money in the bank → almost zero interest.
Convert money into stablecoins → join the crypto ecosystem, maybe even get exchange rewards.

Which would you choose?

This is a naked “siphon effect.” A U.S. Treasury report even warned that if stablecoins are authorized to offer yields, it could cause $6.6 trillion in deposits to flow out. That number alone is enough to keep bankers up at night.

If deposits fall by 10%, banks’ average funding costs rise by 24 bps. It may sound small, but for banks living off spreads, it’s like slashing into their profit sheet. Worse, small and mid-sized banks with weaker defenses could collapse outright if liquidity shocks hit.

Stablecoins’ Hidden Current: Beyond a Crypto Story

Many still think stablecoins are just a crypto story. But in reality, they’re becoming a new fiscal tool for the U.S. government.

Tether’s U.S. Treasury holdings already exceed $120 billion, making it one of the top 10 U.S. creditors — surpassing sovereign nations like Germany. In other words, the U.S. government is now enjoying “low-cost financing” thanks to stablecoins. For the Treasury, this is a gift from the sky: stablecoins lock in buyers for Treasuries, stabilizing markets while lowering financing risks.

So stablecoins aren’t just tugging at users and banks — they’re part of a much bigger geopolitical and fiscal chessboard. For banks to try and block them is like a small vendor going against the city government’s main benefactor. The outcome is obvious.

This is why Section 16(d) of the GENIUS Act became the banks’ “thorn in the eye.” It allows state-chartered trust companies to set up stablecoin subsidiaries and operate nationwide transfers and custody without needing federal deposit insurance or equally strict oversight. In short, these “new players” can bypass the walls banks have had to climb for decades — a backdoor that feels like an existential threat.

The Head-On Collision: Banks vs. Stablecoins

GENIUS Act has effectively brought the two models into direct conflict:

1. Banks’ model:

absorb low-cost deposits;
lend and earn interest;
earn fees from clearing, custody, and payment services.

2. Stablecoins’ model:

absorb dollar capital;
invest in Treasuries to earn yield;
indirectly reward users via exchange partnerships.

3. The clash:

Stablecoins drain banks’ deposit sources.
Stablecoins threaten banks’ clearing/payment revenues.

Moody’s analysts bluntly stated: if stablecoins go mainstream, banks’ revenues from cash management and wire transfers will face long-term pressure. It’s as if the “second granary” banks live on is also being cut off.

Is It Zero-Sum? Maybe Not

Despite the fierce clash, this isn’t necessarily zero-sum.

JPMorgan has already launched JPM Coin, exploring “tokenized deposits” to boost clearing efficiency. Translation: big banks already know it’s better to self-reform than wait to be disrupted.

Looking forward, several patterns may emerge:

Division of labor: stablecoin issuers rely on banks for custody and audits; banks earn compliance and custody fees from flows.
Substitution: some small/mid banks fail under deposit outflow pressure, their share absorbed by stablecoins and big banks.
Hybrid: big banks launch tokenized products, partner with stablecoin issuers, and retain their clearing advantages.

What’s clear: banks clinging to the past will be washed away.

A Bigger Picture: Redefining the Industry

This isn’t just “banks vs. stablecoins.” It’s an industry being redefined.

For regulators: stablecoins are both a new fiscal tool and a potential risk. Balancing regulation vs. innovation will be a long game.
For banks: it’s a survival test. Either they embrace cooperation and transformation, or lose competitiveness within five years.
For users: stablecoins bring more efficient, flexible financial tools, possibly forcing banks to improve services.

At its core, this isn’t one side’s disaster, but a deep restructuring of finance. Just as the industrial revolution replaced handicrafts, stablecoins may wipe out outdated banking models — while providing growth engines for banks that dare to innovate.

Conclusion

Some say finance evolves faster than technology. Banks facing stablecoins are like century-old trees in a storm: some branches will snap, some roots will rot, but new shoots will break through the soil after rain.

The GENIUS Act is not the end, but the prelude. It brings stablecoins into compliance and forces banks to face their weaknesses. In the coming years, the financial game will definitely be reshuffled. Who laughs last depends on whether they cling to the old order — or embrace the new rules.