As Congress looks to advance digital asset market structure legislation, the Independent Community Bankers of America (ICBA) today is calling on lawmakers to ensure the measure addresses concerns with the harmful impact on local economies of allowing crypto exchanges and other intermediaries to pay interest or yield on payment stablecoins. A recent Council of Economic Advisers report downplays these risks, relying on faulty assumptions and ignoring a growing body of research showing that yield‑bearing payment stablecoins would drain deposits from community banks and curtail credit in local communities.
“While the nation’s community banks have a proven track record of keeping credit and banking services available to the nation’s local economies through good times and bad, failing to extend the prohibition of yield and interest on payment stablecoins would severely damage the locally based economic growth that community banks support,” ICBA President and CEO Rebeca Romero Rainey said today. “Community banks hold $4.9 trillion in deposits that fuel $4.1 trillion in total lending activity. Lawmakers cannot risk inflicting significant damage to the community bank lending that propels economic growth in our nation’s local communities.”
With the Treasury Department estimating opens in a new tabthat stablecoins will grow from $300 billion to trillions of dollars by the end of the decade, research from the Federal Reserve opens in a new tab, New York Fed opens in a new tab, and Kansas City Fed opens in a new tabproject that retail deposits substituting into stablecoins will increase liquidity risk and funding costs, hampering the supply of credit in local communities. Further, an ICBA data analysis opens in a new tabof industry research estimates that continuing to allow crypto intermediaries to pay interest or yield on payment stablecoins would reduce community bank lending by $850 billion due to a $1.3 trillion reduction in the industry’s deposits—significantly diminishing lending and economic resilience in local communities.
Among the Council of Economic Advisers’ flawed analysis, the report opens in a new tab:
- Acknowledges that stablecoin yield leads to a recirculation of aggregate bank deposits without recognizing that this reallocation will lead to deposits leaving rural communities to be concentrated as wholesale deposits at global financial institutions.
- Investigates increased lending caused by prohibiting stablecoin yield, rather than the potential decrease in lending from permitting yield due to the resulting loss of deposits.
- Bases its estimates on the current size of the $300 billion stablecoin market, not the Treasury Department’s estimate of a $3 trillion stablecoin market by the end of this decade.
- Draws on research—funded by some of the largest conglomerates in the digital assets industry—that investigates historical deposit trends when the debate is centered on the future impact of an emerging stablecoin sector.
- Argues that stablecoins function as “safe assets,” though many stablecoin holders have experienced significant losses while no depositor has ever lost a penny of FDIC-insured deposits.
Additional data show that community banks are vital partners to U.S. small businesses, farmers, and rural communities. For instance, community banks account for opens in a new tab81% of farm real estate debt held by commercial banks and 74% of operating debt, make opens in a new tabnearly 90% of commercial bank farmland loans with original amounts of $500,000 or less, and represent over 71% of all bank branches in rural areas opens in a new tabwhile holding nearly two-thirds of rural deposits. These impacts illustrate that the diversity of the U.S. banking system, with thousands of community banks spread across the nation, is a hallmark of the nation’s economy that policymakers should continue to preserve and promote.
The GENIUS Act took the first step in addressing the risks posed by yield-bearing payment stablecoins by prohibiting issuers from offering yield, interest, or other considerations. ICBA looks forward to continuing to work with policymakers to explicitly extend this prohibition to crypto exchanges, affiliates, and other intermediaries to enable community banks to continue powering local economies across the United States.