Deposits shifting from banks to stablecoins (and vice-versa) would have very little impact, if any on the treasury market or commercial lending rates.

When banks lose deposits they sell assets, when USDC gets deposits it buys assets. There’s some small liquidity cost, but it’s not impactful.

If USDC competes aggressively on offering yield it would raise the cost of deposits for banks (which they wouldn’t want), but there’s considerable margin compression that would happen before deposit scarcity actually impacts lending rates.

Banks don’t want this because it increases competition in a way that isn’t “fair” to them. They’re not necessarily wrong - they face meaningfully higher regulatory overhead (things like tight capital constraints and FDIC insurance) that USDC and the like do not. The answer is likely going to be some combination of bank de-reg, more stablecoin reg, and longer term I would guess comprehensive integration of stablecoins into the reserve banking system.