The U.S. Treasury Department proposed rules this week that would effectively bar domestic entities from transacting in foreign stablecoins, the latest regulatory front in a contest over whether dollar-linked tokens will siphon deposits from the American banking system.

Treasury's proposal casts a broad compliance net designed to keep foreign issuers aligned with U.S. anti-money laundering standards. The rule lands amid a wave of agency implementation following the GENIUS Act, the stablecoin framework President Donald Trump signed into law last year.

What is the bank industry's main concern?

Banks are pressing regulators and Congress to prevent stablecoin issuers and crypto exchanges from offering yield on holdings. Banks argue that such rewards would mirror core deposits, the funding backbone of the U.S. lending system. The industry's preferred legislative language has stalled in Congress, leaving the question of permitted returns unsettled as federal agencies draft their rules.

Treasury Secretary Scott Bessent told a Senate appropriations hearing that dollar-linked stablecoins could reach $2 trillion in market capitalization in the next few years, a benchmark that frames the stakes for incumbent lenders.

Where would stablecoin reserves sit?

Itay Goldstein, a finance professor at the Wharton School of the University of Pennsylvania, said reserves will most likely remain inside the banking system, though not necessarily at smaller institutions.

"If you put money in a stablecoin, then the firm that is providing the stablecoin will have to put it in a safe asset [like] a bank deposit," Goldstein said. "In that case, it will stay in the banking system, but you could imagine that stablecoin reserves will be invested directly in treasuries, for example, and then it doesn't necessarily have to go through the banking system. So certainly there is a concern."

Todd Phillips, a director at Klaros Group and former FDIC official, expects concentration at the largest banks.

"You're not going to have a giant stablecoin issuer like Circle putting reserves into community banks; they're going to use J.P. Morgan Chase or a much larger company," Phillips said.

Phillips added that Treasury market plumbing amplifies the dynamic. "To the extent that they are buying Treasuries from the primary dealers, the primary dealers have bank accounts with the giant banks," he said.

How big is the disruption risk?

Dave Scola, chief product officer at payments technology company Form3, said the impact hinges on how sticky the deposits become once they migrate. If they behave like traditional deposits, the shift is a balance-sheet reshuffle. If they move freely between tokens, banks lose a stable funding base.

"If things start moving a bit more aggressively in and out of stablecoins, and the banks aren't able to treat those deposits as stable — forgive the pun — then it makes it more difficult for them to use those deposits effectively as longer-term loans," Scola said.

The risk cuts unevenly. Total bank deposits may hold steady while smaller lenders lose funding as issuers route reserves to the banks best equipped to handle custody and Treasury operations.

What is the OCC signaling?

Comptroller of the Currency Jonathan Gould said in a speech Wednesday that 23 of 40 new bank charter applications the OCC has received since Trump took office involve some form of digital-asset activity. The OCC expects to finalize its GENIUS Act rules by November.

"Crypto is part of the business of banking, and we have been making sure that that is the case through our actions, both on the chartering front and through legal interpretations," Gould said. He added that incorporating payment stablecoins into business plans has become "ordinary course" for prospective banks.

Where will adoption concentrate first?

Both Goldstein and Scola identified cross-border payments as the most immediate growth corridor. Goldstein noted that the U.S. domestic payment system already functions well, while cross-border transfers remain slow and costly through traditional rails.

"I suspect until those [domestic uses] start to crop up, you're not going to see broad-based adoption, except for things like cross-border [transactions], where there's timing, efficiency, and cost savings that are almost immediately observable through using stablecoins," Scola said.

Phillips expects banks to focus on custody rather than issuance. "My impression is that most banks are not going to be issuing their own stablecoins, or even issuing their own tokenized deposits. Rather, what they're going to do is custody stablecoins for customers," he said.

How narrow is stablecoin use today?

Roughly 99% of stablecoins serve one purpose: trading cryptocurrencies. That narrow footprint leaves open whether tokenized dollars will migrate into everyday retail payments, an outcome banks fear and crypto firms anticipate.

The OCC's November deadline for finalized GENIUS Act rules, paired with Bessent's $2 trillion forecast, will shape whether the next growth phase rewires U.S. deposit funding or simply redistributes it across the largest banks.