Jefferies warns on stablecoin impact as $314 billion market threatens bank profit margins

Analysts are flagging a long-term risk to lenders as the stablecoin impact on deposits and funding costs becomes more visible in the data.

Jefferies outlines slow but steady pressure on bank profits

The latest Jefferies research warns that dollar-pegged crypto assets could quietly erode U.S. bank earnings over the next five years. Moreover, the report highlights that even modest shifts in customer behavior could matter for profitability.

Jefferies estimates that stablecoins could trigger a 3%–5% decline in core bank deposits during that period. That said, the analysts argue the trend is likely to be gradual rather than a sudden shock to the system.

As deposits drift away, banks may need to replace them with more expensive wholesale funding. Analysts led by David Chiaverini project that average bank earnings could fall by roughly 3% as funding costs rise and margins compress.

The team describes an “intermediate-term risk of gradual deposit runoff from emerging activity-based yield opportunities and payments use cases” that, in their view, should not be ignored. However, they also note that regulation is currently slowing the pace of deposit flight.

Stablecoin market expansion and usage trends

The total stablecoin market cap has climbed to around $314 billion, up sharply from about $184 billion in 2022. Moreover, Jefferies expects a further surge as these digital dollars move beyond trading into mainstream finance.

According to the report, stablecoin transfer volume reached $11.6 trillion in 2025, underscoring how central these tokens have become to crypto market plumbing. Supply stood at $305 billion at the end of 2025, up 49% from the year before.

The analysts project that the market could grow to between $800 billion and $1.15 trillion within five years if adoption in payments, treasury management, and cross-border transactions continues to accelerate. However, they stress that growth rates could moderate as regulation tightens.

Stablecoins, typically pegged to fiat currencies such as the U.S. dollar, already dominate crypto trading pairs. Furthermore, their programmable nature is enabling new stablecoin payments use cases in remittances and corporate cash management.

Bank fears over deposits shifting into digital dollars

Traditional lenders are watching this trend closely. Earlier this year, Bank of America CEO Brian Moynihan warned that the system could be hurt by the “possibility of $6 trillion in deposits” migrating into tokenized cash and related products.

Stablecoins can move 24/7 and plug directly into decentralized finance platforms offering yields above many bank accounts. Consequently, investors seeking higher returns may see them as an alternative to low-yield checking and savings balances.

Jefferies notes that this dynamic could translate into banks deposit outflows over time, particularly at institutions with a high mix of rate-sensitive customers. However, not all of that liquidity would necessarily leave the regulated system if banks themselves become major issuers.

The report, published on Tuesday, March 10, 2026, frames the trend as an earnings headwind rather than an existential threat. That said, management teams are being urged to factor digital asset competition into long-term planning.

Regulation slows the shift of deposits

U.S. policymakers have already acted to curb some of the more immediate risks. The GENIUS Act, passed in July 2025, bars regulated stablecoin issuers from paying yield directly to passive holders.

This restriction limits how rapidly deposits can move out of checking and savings accounts into high-yield stablecoin products. Moreover, it narrows potential genius act implications for runaway disintermediation of banks in the near term.

By blocking direct yield to passive users, the law effectively forces most returns to be generated through active use in trading or DeFi strategies. However, Jefferies still sees “activity-based yield opportunities” as a meaningful draw for more sophisticated users over time.

The researchers argue that the current stablecoin regulatory changes buy banks time, but do not eliminate the competitive challenge. That said, a clearer federal framework for issuers and custodians could also encourage greater institutional participation.

Banks respond with their own digital currency strategies

Some large financial firms are already moving to compete directly. Fidelity Investments has launched its own tokenized dollar, the Fidelity Digital Dollar, signaling that established players want a foothold in on-chain payments and settlement.

Moynihan has said Bank of America will issue a stablecoin if Congress explicitly authorizes such products. Moreover, Goldman Sachs chief executive David Solomon recently said his firm has a “large number of people” focused on tokenization and stablecoins.

For Jefferies, these moves reinforce that the stablecoin market growth story is now intertwined with the traditional banking sector. However, the analysts emphasize that the impact will differ widely depending on each bank’s business mix and funding profile.

The jefferies stablecoin report concludes that banks with heavier concentrations of retail and interest-bearing deposits face more exposure than the largest institutions already building digital asset infrastructure. That said, smaller lenders could also partner with fintech platforms to stay competitive.

Which banks are most exposed to stablecoin competition

Within its coverage universe, Jefferies highlights several mid-sized lenders as particularly vulnerable if deposit migration accelerates. The firm points to Wintrust Financial, Flagstar Financial, Webster Financial, Eagle Bancorp, and Axos Financial as the most exposed.

These banks, according to the analysts, rely more heavily on retail and interest-bearing balances that could be tempted by higher-yield digital alternatives. Moreover, they may have fewer resources than megabanks to build competing tokenization and settlement platforms.

Jefferies suggests that monitoring stablecoin market cap growth and customer adoption trends will be crucial for risk management at these institutions. However, the report also notes that targeted technology investments and partnerships could help mitigate some of the pressure.

In the analysts’ view, the stablecoin impact on funding costs and deposit stability will unfold over years rather than months, giving banks a window to adapt.

Overall, the research argues that while regulation like the GENIUS Act has slowed immediate disruption, the steady rise of stablecoins, expanding use in payments, and growing bank involvement are reshaping the competitive landscape that will define bank profitability over the next five years.