Circle Wins Federal Trust Bank Charter as Lenders Warn Stablecoins Could Drain $500 Billion from Deposits

Washington has granted one of the world’s largest digital currencies a more formalized position within the U.S. financial system.

On July 10, Circle received final approval from the Office of the Comptroller of the Currency (OCC) to establish a national trust bank under federal supervision.

Circle described the approval as a significant milestone for USDC, noting that it will facilitate banks, payment firms, asset managers, and corporate treasury desks to treat USDC as a robust foundation for financial operations.

However, banks interpret the same approval differently. In January, Standard Chartered projected that stablecoins could withdraw approximately $500 billion from U.S. bank deposits by the end of 2028. The Federal Reserve has outlined an even broader spectrum of potential outcomes.

A December 2025 FEDS Note indicated that stablecoin adoption could reduce lending by anywhere between $65 billion and $1.26 trillion, depending on the level of adoption and the location of issuers’ reserves.

Circle now holds a federal banking charter, but it is not the type that transforms it into a traditional lender with branches, checking accounts, and insured deposits: its new entity is a national trust bank.

According to Circle’s announcement, Circle National Trust will launch with fiduciary digital-asset custody for Circle and its affiliates, with reserve management listed as a future capability. The OCC’s conditional approval, issued on December 12, 2025, characterized the proposed institution as a “trust bank” engaging in “trust-company” activities and clarified that the bank remains distinct from the stablecoin-issuance function.

Circle secured a federal trust-bank structure focused on custody and fiduciary services. It did not assume the conventional business of gathering retail deposits and recycling them into mortgages, business loans, and local credit. Nevertheless, this remains a significant victory for the company, as federal supervision provides institutional counterparties with a clearer regulatory framework for utilizing USDC.

For banks, particularly smaller institutions, this sharpens a long-standing concern. Stablecoins can achieve official legitimacy and broader institutional adoption while competing with deposit-taking institutions that still bear traditional obligations and funding models.

The charter essentially enhances Circle’s credibility. Stablecoins have spent years in an ambiguous category between crypto trading infrastructure and serious financial infrastructure, and OCC supervision pushes USDC further into the latter category.

This aligns with the broader policy direction in Washington, as reported in CryptoSlate’s coverage of the GENIUS Act. The policy debate has moved beyond whether stablecoins should exist; the primary argument now concerns how they should be supervised, where they fit within the financial system, and how closely they should be allowed to approach deposit-like products.

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Circle’s transparency page, updated on July 13, reported $72.95 billion in USDC in circulation, with reserve components totaling approximately $73.15 billion. About $11.55 billion was held in bank deposits. The remaining $61.60 billion was held in overnight reverse Treasury repo and Treasury bills with maturities under three months. This reserve structure keeps dollars within the financial system but channels most of them away from ordinary bank deposit funding.

USDC reserve mix as of July 13, 2026	Amount	Share of roughly $73.15B reserve	Why it counts
Other bank deposits	$0.92B	1.3%	A small slice of the reserve still supports ordinary bank funding
Deposits at systemically important institutions	$10.63B	14.5%	Reserve cash still helps banks here, though it concentrates that support at the largest institutions
Overnight reverse Treasury repo	$54.09B	73.9%	Most of the reserve is parked in short-term government-backed instruments
Treasuries under 3 months	$7.51B	10.3%	More reserve cash is tied to Treasury exposure instead of local credit funding
Combined bank deposits	$11.55B	15.8%	This is the part of the reserve most clearly feeding bank balance sheets
Combined repo and T-bills	$61.60B	84.2%	This is the part that helps explain why stablecoins can reshape bank funding without erasing system-wide dollars

Circle Now Changes Who Funds the Loans

The common shorthand suggests that stablecoins pull money out of banks, but that is not entirely accurate.

A customer can withdraw $1,000 from a regional bank and use it to purchase USDC. Circle then places the reserve backing that USDC in cash, repo, or Treasury bills. The seller of those Treasury bills may end up with a deposit at another bank. Thus, the dollars remain in the system; it is merely the funding source that has shifted.

However, this shift is precisely the main issue banks have with stablecoins.

A regional lender does not base loans on national dollar totals but on the deposits it can actually retain. If those balances migrate to a giant institution, a Treasury-heavy reserve structure, or another short-term parking place, the local bank loses a cheap and stable funding source. This is how a stablecoin can alter credit conditions even when the aggregate stock of dollars remains largely unchanged.

The December 2025 FEDS Note treats the issue as a funding problem rather than a cultural conflict between bankers and crypto companies. The paper demonstrates that the outcome depends on three fundamental factors: the source of stablecoin demand, what users sacrifice when purchasing stablecoins, and where issuers place their reserves.

Its lending estimates range from $65 billion to $141 billion in a low-adoption scenario, $190 billion to $408 billion in a moderate case, and $600 billion to $1.26 trillion in a high-adoption case that assumes issuers gain access to Federal Reserve master accounts.

This wide range exists because the transmission mechanism is broad. Stablecoins can alter the composition of funding long before they produce any dramatic change in the quantity of dollars. For community and regional banks, this composition is critical. Deposits that move into a systemically important bank or into a reserve structure dominated by repo and Treasury bills still exist, but they cease to function as low-cost funding for local lenders.

Circle’s own reserve mix illustrates this pressure clearly. As of July 13, roughly 84% of the reserve was held in repo and short-dated Treasuries, while about 16% was held in bank deposits. This is the type of structure a stablecoin issuer would prefer following the 2023 USDC shock tied to Silicon Valley Bank, as it emphasizes liquidity, short duration, and assets that can be easily defended under stress.

However, from the perspective of a small lender, this structure means transactional balances are being pulled away from relationship banking and redirected toward government-backed reserve assets.

This shift also impacts credit. A smaller bank that loses deposits has limited options. It can pay more to retain depositors, which compresses margins. It can replace the funding in wholesale markets, which is typically more expensive and less stable. It can reduce balance-sheet growth, or it can lend less.

This is why the stablecoin debate is, at its core, a debate about credit. As stablecoins become easier to use, deposits become harder to retain, and as deposits become harder to retain, credit becomes harder to supply.

Yield on stablecoins adds complexity to this issue for banks. A stablecoin used primarily for payments already competes with ordinary transaction balances by offering speed, portability, and round-the-clock settlement. Add third-party rewards, exchange incentives, or adjacent tokenized cash products, and the product begins to compete with savings as well.

CryptoSlate’s coverage of the GENIUS Act already touched upon how significant a policy concern this could become. We are now witnessing banks and regulators questioning how closely a private digital dollar should be allowed to approach a bank deposit before regulators decide it should be treated like one.

Banks often compare stablecoins with money-market funds, and the Federal Reserve’s May 2026 follow-up note illustrates why. Stablecoins operate on programmable, cross-border rails with instant settlement. They can spread through digital platforms much faster than earlier deposit competitors. They also possess an international dimension, as foreign demand for dollar stablecoins can offset some domestic outflows if reserve cash remains in U.S. banks.

Banks already understand the threat well enough to begin building tokenized deposits and bank-backed stablecoins of their own. This is how an industry reacts when it sees a new product category directly targeting its funding base.

Circle’s charter provides its institutional counterparties with a stronger reason to view USDC as something they can integrate into custody, settlement, and treasury operations without taking the same reputational leap they had to make a few years ago. This does not guarantee mass adoption, nor does it resolve every open legal issue surrounding stablecoins.

However, it does make the next stage easier to envision. More institutions can now actually utilize USDC, and more payment and settlement volume can move through a privately issued digital dollar with stronger federal backing than before.

Better-supervised dollar infrastructure can deepen liquidity, widen usage, and make onchain dollars more useful in ordinary financial activity. CryptoSlate’s recent coverage of stablecoin demand and payment growth has already pointed in that direction.

But the banks’ perspective is quite different. One sector’s improved settlement rail can weaken another sector’s deposit franchise.

Circle’s OCC approval is therefore much more than a regulatory milestone for a single issuer. It is a signal of where the U.S. wants stablecoins to go.

Washington is no longer treating them as a temporary byproduct of crypto trading, and it is providing at least some of them with a path into federal supervision, even as banks continue to warn that the same products can erode the funding base behind local credit.

The old fight for legitimacy is fading. The harder battle, concerning who holds the dollars and who loses the lending power attached to those dollars, is just beginning.

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