The Independent Community Bankers of America (ICBA) has launched a six-figure advertising campaign in Washington DC to oppose the Clarity Act, a bill that would regulate stablecoins.
The ICBA represents about 4,000 small community banks across the US.
The group warns that the legislation could allow crypto companies to offer rewards for stablecoin transactions, potentially draining $1.3 trillion in deposits from local lenders.
That could deprive small businesses and farmers of $850 billion in loans, according to the ICBA.
ICBA President Rebeca Romero Rainey said community banks fund more than 60% of all small business loans and 80% of agricultural loans in 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,” she said.
If the Clarity Act passes in its current form, Rainey argued, the core mechanism that keeps rural economies thriving could disappear.
“How are those loans funded in the future? And we might argue they wouldn’t be,” she said.
The campaign expands the battle beyond Wall Street into rural America, raising questions about the real impact of the Trump administration’s push to legitimize cryptocurrencies.
It also creates an ideological battle for Republicans as they head into midterm elections: side with the administration or with small farmers and rural borrowers.
A Disrupter on Main Street
Guaranty Bank & Trust President Troy Richards is worried about what the 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,” he said.
Richards said $40,000 has flowed out of customer accounts to crypto investments over the past 90 days alone.
While that is minor for a lender with $330 million in assets, he 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,” Richards said.
Whether that could lead to a silent bank run remains a major concern for local operators.
“That’s the question of the day,” Richards said.
If deposits dwindle, banks will have to find more expensive funding, pushing up costs and restricting loans for local borrowers.
“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,” Richards explained.
While some crypto advocates argue that stablecoin reserves will end up being held at traditional banks, Richards said that 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,” he remarked.
The Battle for Innovation and Regulation
Crypto lobbyists argue that major concessions have already been made for banks, with the Clarity Act originally allowing awards on stablecoin holdings, akin to traditional interest.
Cody Carbone, chief executive of the Digital Chamber, said community banks are trying to quash their upstart rivals.
“ICBA’s campaign isn’t about protecting Main Street, it’s about shielding an outdated model from competition,” he said.
Carbone insists the legislation is vital for modernizing the American financial system and expanding consumer choices.
“Our industry is fighting for clear federal rules through the Clarity Act, while ICBA is fighting to keep Americans locked out of innovation,” he stated.
The trade group believes the regulatory framework will secure the market for millions of digital asset holders.
“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,” Carbone noted.
However, the ICBA says it welcomes competition but demands a “level playing field” with the same regulation, safeguards, and capital requirements.
Small banks have already grappled with the rise of fintechs, which forced them to innovate and offer more modern products, the group says.
“We’re not afraid of competition so long as it’s fair,” Richards added.
The hope now is that Congress will listen to the concerns of rural financial institutions.
“The crypto industry, I think, has done a pretty effective job of getting their message across,” Richards said.
With the legislative debate heating up, local lenders are ready to make their voices heard on Capitol Hill.
“It’s our turn now,” he concluded.
