Up to 4,000 community banks fear looming legislation to regulate digital cash will deprive rural firms and farmers of $850bn-worth of loansOn a quiet summer morning, above a small mid-western town, an American flag is waving in the breeze. The camera cuts to a father helping his son at the
Kalyeena Makortoff Banking correspondent
On a quiet summer morning, above a small mid-western town, an American flag is waving in the breeze. The camera cuts to a father helping his son at the wheel of a tractor, and flits to a smiling couple on a grass-lined pavement, moments before flashing to grainy images of “crypto insiders” in suits.
“American families don’t want experiments with their money,” a voice booms. “They want jobs, growth, and available credit. When crypto gets a free pass, communities pay the price.”
The 30-second video, which launched in Washington DC this month, is part of a six-figure advertising campaign by the Independent Community Bankers of America (ICBA), meant to help fight a landmark bill that will determine how America’s multibillion-dollar crypto sector is regulated.
The ICBA – which represents about 4,000 small community banks across the US – is concerned that the Clarity Act will let crypto companies pay out rewards and incentives for customers transferring, or using, “stablecoins”.
Stablecoins are cryptocurrencies whose value is typically pegged to an asset, or currency such as the US dollar, and tend to be used as an intermediary between fiat currency and crypto.
Those incentives could encourage people to shift their cash out of local lenders and on to international crypto platforms online.
The ICBA is warning that could drain $1.3tn (£980bn) of deposits from community banks, ultimately depriving small businesses and farmers of $850bn-worth of loans primarily funded by customers’ savings.
ICBA president Rebeca Romero Rainey is quick to point out that community banks fund more than 60% of all small business loans, and 80% of agricultural loans, across the US.
“They are, in many cases, that local economic engine, because they are taking local deposits and redeploying them in the form of loans, and creating economic growth.”
If the Clarity Act passes in its current form, Rainey says, “how are those loans funded in the future? And we might argue they wouldn’t be”..
Big banks, such as JP Morgan, have long opposed important elements of the Clarity Act, pitting them against crypto bosses including Coinbase’s billionaire chief executive, Brian Armstrong.
But the ICBA’s campaign expands the battle beyond Wall Street into rural America, and raises questions about the real impact that the Trump administration’s push to legitimise cryptocurrencies could have on communities across the US.
It is also creating an ideological battle for Republicans as they head into the midterm elections. The question is whether to side with the Trump administration, which has been pushing to bring crypto and fringe financial firms into the mainstream, or the small farmers and rural business borrowers that have historically provided a bedrock of support for many Republican lawmakers.
More than 1,000 miles south-west of ICBA’s DC offices, Guaranty Bank & Trust president Troy Richards is worried about what the new bill will mean for his industry. “It is very likely going to be one of the largest disrupters of community banking we’ve ever seen.”
Guaranty Bank & Trust is already counting the costs of the crypto boom. Richards, who is one of 68 staff at the nine-branch bank, says $40,000 has flowed out of customer accounts to crypto investments over the past 90 days alone. While that is relatively minor for a lender with $330m (£249m) in assets, Richards worries it is a sign of what is to come.
“It’s a relatively small amount now for us. But … it’ll only be exacerbated if the issuers of stablecoins, or the exchanges that are involved, are going to be allowed to pay interest or rewards. That’s just going to accelerate that deposit outflow, even more than now.”
Whether that could lead to a silent bank run, where banks face a slow demise as deposits trickle away to tech firms, “that’s the question of the day,” Richards says.
And if deposits dwindle, that will mean having to find more expensive sources of funding, which would push up costs and restrict the loans available for local borrowers. That will have ripple effects throughout the local community that Richards has worked with for more than 40 years.
“These crypto issuers are not in our local communities. They can’t sit across the desk from a farmer, or from a small business owner, and counsel with them on how to improve their business. They don’t sponsor the local little league team, they don’t buy ads in the local high school yearbook, and they’re not paying local ‘ad valorem’ taxes,” he says, referring to a local property tax that benefits local school systems and municipalities.
While some crypto advocates argue that stablecoin reserves will end up being held at traditional banks, Richard says is unlikely to make up for community lenders’ losses.
“I don’t think any of the issuers of stablecoins are going to be looking to have their reserves at Guaranty Bank in north-east Louisiana. So that’s not going to happen for us.”
Crypto lobbyists argue that major concessions have already been made for banks, with the Clarity Act having originally allowed awards to be paid out on stablecoin holdings, rather than use and transactions, akin to the traditional interest earned on deposits.
Cody Carbone, chief executive of American crypto trade group, Digital Chamber, argues that community banks are merely trying to quash their upstart rivals.
“ICBA’s campaign isn’t about protecting Main Street, it’s about shielding an outdated model from competition,” Carbone said. “Our industry is fighting for clear federal rules through the Clarity Act, while ICBA is fighting to keep Americans locked out of innovation.
“Clear rules of the road will protect consumers and establish a transparent, fair way for crypto to be a choice for the 70 million Americans who own crypto.”
However, the ICBA says it welcomes competition, but demands a “level playing field”, where any firm vying for lucrative deposits is subject to the same regulation, safeguards and capital requirements.
Plus, it says, small banks have already grappled with the rise of fintechs, which it says forced them to innovate and offer more modern products and services to customers. “We’re not afraid of competition so long as it’s fair,” Richards adds.
The hope now is that Congress will listen. “The crypto industry, I think, has done a pretty effective job of getting their message across,” Richards said. “It’s our turn now.”
