By cryptoadmin Summer Mersinger is right about one thing: stablecoins have the potential to make payments faster and more global. She is also right that the United States should not regulate this technology out of existence.
But as a South Dakota community banker, I was disappointed to see her dismiss the voices of banks like mine, suggesting in her recent CoinDesk op-ed that concerns about deposit flight and the loss of local lending were raised by “big banks” and too late in the legislative process. While that may be a convenient political narrative, neither is true.
This issue matters to me and other small South Dakota banks, and we have been shouting it from the rooftops for more than a year. If Congress doesn’t tighten the Clarity Act’s restrictions on stablecoin rewards, small banks and the communities we serve will pay the price.
Mersinger argues that concerns about stablecoins draining bank deposits are largely hypothetical. If a customer moves $100,000 from a bank account into a stablecoin, she points out, that money does not disappear. The stablecoin issuer must hold reserves, potentially including bank deposits and Treasury securities. The money remains in the financial system.
That is true — and it misses the point.
Some people may view our banking system as an abstraction where money and institutions are interchangeable, but the U.S banking system is the envy of the world because of its breadth, depth and diversity. The vast majority of our nearly 4,500 banks are very small, ensuring that every town in every corner of this country can access basic financial services.
The reality is that most community banks will never hold a dollar of stablecoin reserves, but most community banks will lose deposits to stablecoin wallets. If my customer moves $100,000 from my bank into a stablecoin, and the stablecoin issuer buys Treasury securities to back it, I have lost $100,000 of funding for local credit — my bank and my community will see no benefit from that Treasury bill.
The distinction matters enormously in a state like South Dakota, where community banks are deeply connected to the agricultural, ranching and small-business economies. The loans we produce may not be the nation’s biggest, but they are the economic lifeblood of the communities we serve.
Smaller banks in this state currently hold about $47 billion in deposits at local branches. The American Bankers Association conservatively estimates that as much $4.7 billion of those community bank deposits could be drawn away by stablecoins if Congress doesn’t put reasonable guardrails in place. That would reduce lending capacity in our state by as much as $3.7 billion. Every one of those lost loan dollars means starting a business or getting a home loan in South Dakota will be that much harder.