- within Antitrust/Competition Law and Law Practice Management topic(s)
When I was a young community banker, I volunteered for a program sponsored by our state bankers' association called "Banker in Every Classroom." This was in 2012, when public opinion of bankers was at an all time low following the Great Recession. As we know, this criticism often unfairly targeted community bankers — professionals who weathered the recession but did little to cause it. The program helped improve students' financial literacy while also defending the reputation of bankers who were essential to their local communities.
My presentation during the program began with a simple explanation of what a bank actually is. I first gave the dictionary definition and then used an illustration to show how bank activities influence a community's money supply. In my example, $10 of capital was paired with $90 of deposits from Customer 1 and loaned out to Customer 2. Customer 2 then deposited $80 of the loan, repaid $10 of principal, and paid $10 in interest. Of that interest, $4.50 was used to pay interest to Customer 1 and $4 was paid back to Customer 2. I used round numbers and simple rates to keep the math clear.
At the end of the exercise, I showed students that only $100 of "new" money had entered the bank. This consisted of Customer 1's $10 of capital and $90 of deposits. However, the bank's balance sheet reflected $181.50 of assets that could support additional lending in the community. I explained how this responsible leverage benefits both the community and the bank's shareholders. I also cautioned how mismanaging that leverage contributed to crises such as the Great Depression and the Great Recession.
I still think about that example often, especially when national debates arise about issues that could reshape the community banking model. Most recently, conversations about stablecoins and whether they may siphon deposits away from community banks have brought that classroom lesson back to mind.
The debate today centers on the proposed Digital Asset Market Clarity (CLARITY) Act, which passed the House last summer and is now before the Senate. For community bankers, the key issue is whether stablecoin issuers should face tighter limits to prevent them from offering yield-like incentives. These incentives could look very similar to interest paid on deposits. The fear is that customers may increasingly withdraw funds from community banks to purchase stablecoins if such yields are permitted.
At first glance, this concern may appear self-serving. Some may view it as an attempt to fend off competition or slow innovation. However, the example I used in the classroom helps illustrate why bankers are just as worried about the effect on their local communities as they are about the effect on their shareholders.
Stablecoin issuers governed by the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act cannot leverage customer funds the way banks do. They must hold a dollar denominated, high-quality liquid asset, such as a US Treasury bill, on a one to one basis for every stablecoin issued. This means each dollar moved from a community bank into a stablecoin leaves the local community entirely. Instead of being recycled into loans that expand the local money supply, the dollar sits in a vault or in a Treasury bill. In practice, many of those dollars will move from rural or underserved communities onto the federal balance sheet to help fund growing budget deficits.
To be fair, that concern sounds far more like a macroeconomic warning focused on the health of rural America and the national economy than a simple disagreement over deposit competition. Community bankers deserve credit for raising it.
This is not a hypothetical risk. On December 15, 2025, the Independent Community Bankers of America released new data estimating that allowing crypto intermediaries to pay interest or yield on payment stablecoins could reduce community bank lending by $850 billion, stemming from an estimated $1.3 trillion reduction in deposits. That represents $850 billion redirected away from local farms, small businesses, and working families and toward the financing of federal debt. Shrinking local economies while expanding federal indebtedness is a significant reason for concern.
There is tremendous promise in blockchain technology, and our future financial system will undoubtedly include digital payments such as stablecoins. However, as we pursue that future, we must not forget what has made the American economy resilient and inclusive. A broad and diverse network of community banks has fueled local growth far beyond major financial centers for generations.
Perhaps that should be the topic of future financial literacy programs, for students and perhaps even for Congress.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
