On May 19, President Trump signed an executive order directing the Federal Reserve and other regulators to review whether fintech and crypto firms should get direct access to the central bank's payment rails, the Fedwire system that moves money between banks. The order asks the Fed to examine its rules on master accounts and report back on a tight timeline.

A Fed master account is the bank account for banks.

It allows the holder to settle directly through the Fed rather than renting access from a sponsor bank. Historically it has been reserved almost entirely for insured deposit-taking institutions. Kraken broke that line in March, becoming the first crypto firm granted a limited account. Ripple, Anchorage Digital and the payments firm Wise are in the queue behind it.

Why this matters

The playbook in our main story is about how banks defend their moat. This is about the moat itself. Direct access to the payment system is the deepest regulatory privilege a bank holds, the thing a stablecoin issuer or fintech has always had to rent from a bank to replicate.

If the Fed opens that access, the disintermediation stops being something banks can compete their way out of. The state is levelling the very ground the franchise stands on. Analysts were quick to note the order is a request, not a command, and that the Fed was already drifting this way.

That is the point. When the regulator is already moving and the White House is pushing, the question is not whether the rails open. It is when.

HSBC is rolling out its Tokenized Deposit Service to corporate clients in the US and the UAE in the first half of 2026, extending a product it launched in Hong Kong, where Ant International became the first client.

The service lets corporates move money domestically and across borders in seconds, around the clock, on a blockchain rail rather than the legacy correspondent banking system.

What makes it notable is the choice underneath it.

HSBC is leaning into tokenised deposits rather than a stablecoin. A tokenised deposit is a digital representation of money already sitting in a regulated bank, issued by the bank, backed by the deposit, and living inside the existing prudential framework. A stablecoin sits outside that framework. HSBC's global head of payments described the bank as making big bets in the space and did not rule out a stablecoin later, but the priority is clear: keep the money on the balance sheet, wrap it in new technology, and capture the 24/7 programmable functionality without handing the deposit to a third-party issuer.

Why this matters

This is a bank choosing the most defensive response available.

Not building a rail from scratch, as JPMorgan did with Kinexys, and not issuing a stablecoin that sits outside the prudential framework.

HSBC is taking the deposit it already holds and digitising it, capturing the 24/7 programmability without letting the funding leave the balance sheet. It is the lightest-capital, lowest-risk play available to a large regulated bank, and it answers the threat in our main story directly: the tokenised deposit gives corporates the speed of a stablecoin while keeping the deposit that stablecoins are designed to drain.

The open question is whether a closed, bank-issued token can ever match the reach of a public-chain stablecoin that anyone can hold.

On May 20, the Qivalis consortium announced that 25 more banks had joined its euro-stablecoin project, bringing the total to 37 banks across 15 countries, less than six months after launching with twelve founding members.

The Amsterdam-based venture, chaired by former NatWest chairman Howard Davies and run by a former Coinbase Germany head, plans a MiCA-compliant, fully euro-backed stablecoin in the second half of 2026, pending an e-money licence from the Dutch central bank.

The membership reads like a roll-call of the European banking system: BNP Paribas, ING, UniCredit, CaixaBank, BBVA, ABN Amro, Rabobank, Intesa Sanpaolo, Nordea and dozens more.

The pitch is explicit. The ECB has warned that private dollar stablecoins could drain European deposits and weaken its grip on monetary policy. Qivalis is the banks' answer: a regulated, bank-issued, euro-denominated alternative that keeps the reserves inside the European system rather than ceding the rails to USDC and USDT.

Why this matters

Note the contrast with HSBC above. HSBC is a single global bank large enough to act alone. Qivalis is what everyone else does, band together, because no individual European bank has the scale to build a credible stablecoin and the network it needs by itself.

That is the predator/prey logic from our main story this week playing out at the system level: the giants move alone, the rest combine.

It is also a sovereignty play. A bloc of banks is building a euro rail specifically to avoid the gravitational pull of the dollar stablecoins, which is precisely the force we will examine in next week's issue.

The speed of it, 37 banks in under six months, tells you how seriously Europe now takes the threat of being intermediated in its own currency.

Last week ended on a hard line: ‘adapt or die.’

It needs some refinement.

Not because it is untrue, but because it describes the easy half of the problem. The banks will adapt. The bigger question is what adaptation costs them, and whether the thing they are paid a premium for survives it.

Let's start with the right framing.

In 2002 the Oakland Athletics had the second-lowest payroll in baseball.

Billy Beane and a Yale economics graduate with a laptop worked out that the market priced the wrong things. On-base percentage was undervalued. Stolen bases and batting average were overpriced. They bought the players nobody wanted, won 20 games in a row, changed how the sport thinks about value and inspired a fantastic book and Oscar-nominated film.

The A's may have changed the game, but they never won the World Series.

The teams with bigger budgets watched the method work, copied it, and won with it. The Boston Red Sox hired their own analysts and broke The Curse of the Bambino two years later.

Today every club in the league has a sabermetrics department devoted to data science. The edge that made Oakland and Billy Beane famous is now the price of entry.

This is the stablecoin story, and the banks need to understand which character they are in the piece.

Bitcoin is the Oakland A's.

The first blockchain to establish a global use case. It proved something the establishment swore was impossible: you can move value outside the banking system, on a distributed ledger, at scale, without a bank in the middle. It changed the game but did not win it. Bitcoin became a store of value, a digital commodity, a digital proxy for gold.

And as the first widely-adopted non-state money of the modern age, it remains a controversial project with regulators and is still characterised, for many people, as a hugely volatile asset used to fund nefarious activities rather than a true monetary innovation.

This is not an endorsement of Bitcoin.

It is a claim that its success laid the crucial technological foundations for stablecoins. Without Bitcoin, stablecoins would not have their current exponential growth profile and their disruptive potential to the financial system would not be the biggest story in finance.

Same insight, value moving outside the banking system on a ledger, with the volatility stripped out, the dollar peg bolted on, and serious capital behind it. The disruption Bitcoin promised is being delivered by the instrument that copied it.

And the method is now table stakes. In the same way that every baseball club ended up with a sabermetrics department, the major banks are racing to define their modern value proposition in the blockchain age.

JPMorgan has Kinexys. Standard Chartered, the first G-SIB to offer deliverable spot crypto trading, recently became the first such bank to provide custody in a tokenised-collateral framework alongside BlackRock and OKX.

In Australia, ANZ built A$DC, the first Australian-dollar stablecoin issued on a public blockchain by a commercial bank, years ago. Every serious institution is building a digital-asset capability or will be.

That is the point. When the method becomes tablestakes, having it is no longer an advantage, it is the minimum. And a bank that is paid a premium for a margin cannot defend that margin by doing the thing everyone else is now also doing.

So, every exposed bank needs a playbook.

THE CONVERGENCE

First, a recap of why the playbook is needed at all.

Last week's three fronts attack the same balance sheet at the same time, the way three weather systems converged on the Andrea Gail in 2000's The Perfect Storm.

Front One – stablecoins – threatens the funding model.

Low-cost transaction deposits, the near-free funding that banks deploy at the cash rate and keep almost the entire spread on, migrate to digital money market funds in a stablecoin wrapper. Brian Moynihan, CEO of Bank of America, told an earnings call that as much as $6 trillion in US deposits, around 30 to 35 percent of the system, could move into stablecoins under the wrong regulatory outcome, a figure he attributed to the US Treasury. His own description of the consequence is the thesis in one sentence: if deposits leave, banks either cannot lend to the same degree or must replace the funding in wholesale markets, at a cost.

Front Two – agentic AI - accelerates it.

The friction that kept depositors in place, the lazy tax, is being removed by software. The gap already exists: Macquarie pays 2.75 percent on a transaction account, and the four Australian majors pay zero. For forty years the saver did not move, because moving was a project and the juice was not worth the squeeze.

An agent that compares rates and executes when the differential clears a threshold turns a forty-year inertia into a same-day transaction. The legacy bank accounts do not get closed but the balances migrate, and they do not come back.

The first two fronts are global.

Front Three is local: capital gains tax changes that reprice the equity holder.

In Australia, the May Budget reforms the tax treatment that made Big Four shares a uniquely attractive long-duration hold for non-super wealth. The structural buyer at the personal portfolio level is being repriced at the same moment the earnings base is being attacked.

The two compressions do not add, they multiply. A lower earnings base, valued on a lower multiple, produces a share-price outcome larger than either factor alone.

Consider where that multiple sits, and what it rests on.

A useful lens is terminal value: the share of today's price that depends on cash flows in the distant future, beyond the next few years of visible earnings.

A fast-growing technology or biotech stock carries a high terminal value, and reasonably so. You are buying the future, not the present. A mature, low-growth, dividend-paying bank should be the opposite. Most of its value should rest on the earnings you can already see.

Take Commonwealth Bank of Australia (CBA), the biggest bank in the country and the most expensive bank in the developed world.

CBA trades at roughly 26 times earnings.

JP Morgan, the largest and most powerful bank in the world, trades at around 14. Goldman Sachs, near 18. A retail bank serving 27 million Australians is valued at close to double the multiple of the premier franchise on Wall Street.

From Jarden Research:

That is the mismatch.

The market is pricing CBA like a growth stock while it earns like a utility. For context, a typical REIT carries about 70 percent in terminal value. CSL at its peak was around 75 percent. At a conventional 12 to 14 times earnings, the defensible figure for a major bank would be 50 to 60 percent.

When most of the value sits in the distant future, anything that threatens that future hits the valuation hardest. That is precisely what the convergence does.

This is why the playbook is forced.

Not survival, a defence of the premium.

THE PLAYBOOK

Four moves. Each one defends the franchise, each one sacrifices margin.

Move one: Pay up for deposits.

Raise rates to keep the funding base. The reference case is recent and American. After the 2023 regional bank failures, deposit competition spiked across the US system and even the largest banks paid up to retain balances. The near-free deposit repriced sector-wide.

The sophisticated version is not just paying up, it is terming out.

A treasurer who can see the migration coming usually pre-funds it: issues covered bonds and senior unsecured while spreads are tight, extends the wholesale maturity profile, builds the liquidity buffer before the outflow forces them into the market at the worst moment.

I ran these desks and know this playbook well.

The tell that the migration is real is when the smarter treasuries are already doing this.

The cost: every basis point paid on a retained deposit comes straight off the spread. Terming out locks in a funding cost higher than the near-free deposit it replaces. You keep the funding but you surrender the economics that justified the premium.

Move two: Build the rail.

If value is going to move on-chain, own and operate the chain.

JP Morgan is the global benchmark.

Kinexys, their blockchain division, has processed more than $3 trillion, and in May 2026 the bank settled the first cross-bank tokenised-Treasury redemption on a public blockchain, connecting its private rail to a live Layer 1.

In Australia, ANZ built A$DC and has run tokenised-settlement trials. ANZ does not need to start building a sabermetrics department. It already has one running.

But this move is not available to everyone. Building and operating settlement infrastructure at scale demands capital, technical depth and vision that most banks do not have. JP Morgan can absorb the cost because of its balance sheet, market position and the fee income it captures in return.

The cost: building the rail cannibalises your own free funding. You move the deposit onto a rail that earns rail economics, not deposit economics. The scaled incumbent can wear that. The sub-scale bank builds the thing that eats its own margin and cannot backfill the hole.

Move three: Buy or partner the threat.

Acquire the capability instead of building it. The market has set the price. Stripe bought the stablecoin infrastructure platform Bridge for $1.1 billion in early 2025, its largest acquisition ever, at roughly three times Bridge's valuation only months earlier, for a company barely two years old.

That is the lesson in the number. Stablecoin infrastructure trades at a fintech multiple, not a bank multiple.

The cost: you pay a fintech multiple in bank currency for a structurally lower-margin business, and you dilute the blended return that justified your own premium. In Australia, add the APRA and ACCC friction that a US acquirer does not face. You buy the capability and lower the average margin.

Move four: Lobby and stall.

Slow the threat through the rulebook.

This is being run on two fronts of the same offensive. The trade associations, the Bank Policy Institute and the American Bankers Association, have spent months trying to tighten the stablecoin yield language, arguing that yield-bearing stablecoins will drain deposits and starve lending. And the CEOs have made the same case in public: Moynihan's $6 trillion warning is lobbying by earnings call, the systemic-risk argument aimed squarely at the regulatory mood.

They have largely lost the architecture fight. The activity-based rewards structure survived committee intact. The battleground has narrowed to the design of the rewards, not their existence.

The cost: lobbying buys time, not escape. And the time it buys is the one thing the convergence will not grant, because Front Two is compressing the very migration timeline the lobbying is trying to stretch. You spend political capital to slow a clock that software is speeding up.

PREDATORS AND PREY

The Reserve Bank of Australia has already told the sector which way this goes.

In his ‘After Acacia’ speech in March this year, RBA Assistant Governor Brad Jones was blunt:

When the central bank moves from whether to how, adaptation is not a choice the banks get to debate. It is just a question of timelines.

Every serious bank adapts. The choice is between the banks that run the new playbook at scale and stay worth a premium, and the banks that cannot, and become inventory.

Three things separate them.

The incumbent advantages are real and, in some cases, decisive.

CBA shows how deep that moat runs.

The bank has wired itself into the migrant arrival journey.

A new arrival can open a CBA account up to two weeks before leaving home, often on the recommendation of a migration agent, and CBA is the first Australian bank to let customers open an account by scanning the chip in a government-issued passport, a capability now being extended to migrants before they land.

Around 700,000 new customers join each year.

There is also a quiet halo effect: the word "Commonwealth" in the name reads as official to many new arrivals, a perception CBA earned honestly as a government-owned bank until the 1990s and has never had reason to correct. Whether or not that perception can be measured, the structural fact is plain. CBA captures the customer at the moment of arrival, before any competitor or any agent gets a second look.

These are not trivial, and they are precisely why the strong franchises become predators rather than prey.

The disruptor advantages also compound.

These combine to form the classic ‘attacker’s advantage.’

And the one that operates on a clock no incumbent can stop: the intergenerational wealth transfer.

The trust advantage of an incumbent is strongest with the cohort that holds the most wealth today and weakest with the cohort inheriting it. The single best moat a bank has is depreciating on a demographic schedule, as capital moves from generations more used to traditional banking to digitally-native ones.

Which is why awareness is not enough.

Ask Kodak.

They saw the storm coming.

Kodak invented the digital camera. Its management understood, at board level, that digital would replace film. They made the call, and they still could not execute the decision through their own organisation fast enough to survive it. The failure was not strategy or awareness. It was execution velocity through an incumbent structure. The threat was understood but the company died anyway.

That is the real question for the strong banks. Not whether they see it, they do. Whether they can move at the speed the storm demands.

This is also the reason behind huge moves at Block and Coinbase to shed staff and put agentic AI in the middle of their organisations to speed up decision-making and execution.

Middle management has always done a specific job: move information upward, translate decisions downward, and hold the organisation's institutional memory in between. It was the connective tissue of the firm.

Every meeting record, customer profile and call report is digitised and fed into the decision-making framework in real time, and the layer that used to carry it becomes a cost rather than a capability.

This is where CBA matters. CBA has the most to lose. The largest free-deposit franchise, the most exposed net interest margin, the highest multiple. On Jarden's analysis, the repricing of low-cost deposits would compress CBA's margin by more than any peer.

The most exposed franchise is also the most motivated, and the best capitalised to respond.

Expect CBA to be the most aggressive adopter, not the slowest. The bank with the most to defend has both the sharpest exposure and the deepest balance sheet to fund a defence. If any Australian major runs the playbook at scale and comes through still worth a premium, it is the one with the most reason to move first and hardest.

The prey are elsewhere, and the consolidation is already underway.

I was treasurer of a mid-tier Australian bank through one of these mergers. I know why sub-scale banks combine, and it is not ambition: it is cost.

Regulatory cost, cyber cost, technology cost, the cost of the mortgage-broker channel that dominates distribution, all against a margin that has been grinding lower for twenty years.

S&P Global Ratings has put a number on the threshold in August 2024. Around A$20 billion in assets is emerging as the minimum scale to compete in Australian retail banking, the level at which APRA designates a bank a ‘significant financial institution.’

On S&P's analysis the number of mutual lenders could fall below ten, with roughly forty disappearing through consolidation, a process which is well underway. Mutual net interest margins have already compressed toward 2 percent, and cost-to-income ratios sit far above the majors.

These are the banks with a narrow product set and a heavy reliance on retail deposit funding. Which is exactly the funding base stablecoins drain first. They have no balance sheet to build a rail, no scale to absorb the cost, and no diversified income to cushion the hit.

The wave was already breaking.

Stablecoins just make it break faster.

The same physics runs offshore. US community and regional banks face the same scale-cost-deposit squeeze that has driven consolidation since 2023. UK building societies and challenger banks face their own version.

Different flags, identical mechanics.

THE STORM STILL FORMING

One pressure system has not yet made landfall.

The rewards architecture that arms stablecoin economics, the activity-based rewards preserved under Section 404, has cleared every committee but is not yet law. As we covered in Part 1, the banks fought to strike the rewards model out, and lost. It survived intact. What remains is not whether the model exists, but its final design, and whether the bill clears the floor.

The CLARITY Act passed the House. The Senate Banking Committee advanced it 15 to 9 in May, with two Democrats crossing over. It now faces the full Senate floor, where it needs 60 votes. A conflict-of-interest provision and law-enforcement concerns are still live, and the Banking and Agriculture Committee versions still have to be reconciled. Industry expectation is a floor vote by around August, assuming the ethics language is settled first.

This matters for how you read the market.

The announcement of the yield compromise produced a huge rally in certain assets. Circle, the issuer of USDC, jumped as much as 20% intraday, and Coinbase rallied with it. That was a market aggressively front-running a bill that still has to survive the floor.

The structural re-rating of the banks and the relief rally in crypto equities are not the same thing. One is a slow repricing of a deposit franchise. The other is a fast trade on a legislative headline. Be careful not to confuse them.

It is, fittingly, the Moneyball narrative in real time.

A league overreacting to a method that has changed the game but has not yet, finally, proven it can win.

THE NEXT ISSUE

The Oakland A's changed baseball and never won the title. The franchises that copied them fastest won the spoils.

The Australian Big Four will not disappear, nor will the largest banks in each country.

They are too large, too embedded, too well capitalised. They will adapt, and the strongest will come through still formidable. They will pay up, build, buy or stall, in different measures and combinations.

Those are different things, and the gap between them is the whole story. The storm does not end banking.

It thins the herd and reshapes their profitability.

Next week we turn from the banks to the system.

The Stablecoin Singularity, a two-part exploration of the point at which capital becomes irreversibly drawn onto US-dominated stablecoin rails, and what that means for deposits, sovereigns and central banks.

The dollar is winning this on rails almost nobody else has built yet.

That is not a footnote. That is Issue 11.

-Thanks for reading.

Mark McKendry, Stablecoin State

P.S. If you would like to contact our team just reply to this email - we read every response.

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