{"id":258541,"date":"2025-07-14T10:00:46","date_gmt":"2025-07-14T14:00:46","guid":{"rendered":"https:\/\/ncrc.org\/?p=258541"},"modified":"2025-07-11T11:58:24","modified_gmt":"2025-07-11T15:58:24","slug":"the-need-for-community-development-accountability-for-stablecoin-issuers","status":"publish","type":"post","link":"https:\/\/ncrc.org\/the-need-for-community-development-accountability-for-stablecoin-issuers\/","title":{"rendered":"The Need for Community Development Accountability for Stablecoin Issuers"},"content":{"rendered":"

A <\/span>stablecoin<\/span><\/a> is a digital asset that can represent virtually any national currency. In most cases, stablecoins are assigned 1:1 to the US dollar, but can also be pegged to other international currencies, such as the <\/span>Euro<\/span><\/a> or <\/span>Yuan<\/span><\/a>.<\/span><\/p>\n

In the past five years, the size of the stablecoin market has risen from approximately <\/span>$5 billion to over $250 billion<\/span><\/a>. Stablecoins have allowed more people than ever before to access sophisticated payment and banking services without having to rely on <\/span>traditional financial intermediaries<\/span><\/a>.<\/span><\/p>\n

Stablecoins offer the most <\/span>compelling use cases<\/span><\/a> in countries where currency fluctuation is extreme and banking and regulatory regimes are less sophisticated.<\/span><\/p>\n

Stablecoins often function like a gift card by providing a convenient way to store cash on a <\/span>blockchain<\/span><\/a> without it being exposed to large price movements. Traditional cryptocurrencies like <\/span>Bitcoin<\/span><\/a> and <\/span>Ethereum<\/span><\/a> are normally subject to high <\/span>price volatility<\/span><\/a>.<\/span><\/p>\n

Potential Risks of Stablecoins<\/strong><\/h4>\n

Stablecoins present a unique risk to community banks as they compete with fintechs for customers. The technology allows people to bypass banks \u2013 a threat <\/span>known as disintermediation<\/span><\/a> \u2013 with the mix of benefits and risks that come with sidestepping the traditional wraparound relationship between customer and service provider. The US Treasury’s Borrowing and Advisory Committee (TBAC) estimated that as much as <\/span>$6.6 trillion in deposits<\/span><\/a> are expected to move from the traditional finance sector into the stablecoin market by 2030.\u00a0<\/span><\/p>\n

That seismic shift threatens fundamental upheaval to economic development. A dollar moved from traditional deposit accounts to stablecoins does not circulate through the wider economy in the same way. Multiple organizations, such as the <\/span>Independent Community Bankers Association (ICBA)<\/span><\/a>, have noted that community banks use deposits to originate approximately 60% of all small business loans and 80% of agricultural loans nationally.<\/span><\/p>\n

The risks posed by this level of disintermediation could be existential for low- and moderate-income (LMI) communities. The Community Reinvestment Act (CRA) requires banks to serve credit needs of LMI communities in order to prevent redlining and unequal access to wealth building opportunities, including direct lending as well as financing for community development projects.<\/span><\/p>\n

If the stablecoin market disrupts traditional banking\u2019s ability to invest in these community development projects, it could significantly reduce funding for local affordable housing efforts and small business assistance programs. Banks will have less capital to lend and will see their CRA obligations reduced as their assets decline from a drop in deposits.\u00a0<\/span><\/p>\n

The Need for Community Development Obligations<\/strong><\/h4>\n

Under both the Senate\u2019s recently passed GENIUS Act and the STABLE Act that\u2019s been introduced in the House, stablecoin issuers would function similarly to banks by taking in deposits in compliance with <\/span>reserve requirements<\/span><\/a>. Bank deposits are insured by the FDIC in order to boost a consumer\u2019s confidence that money will be available when consumers need it. This guarantee has been in place for so long that many of us take it for granted. However, without deposit insurance guarantees, money would not be available to depositors should the bank fail due to mismanagement or an economic downturn, and banks would struggle to retain customers.\u00a0\u00a0<\/span><\/p>\n

The CRA states that banks which benefit from federal deposit insurance have an obligation to meet the credit needs of entire communities, meaning that banks cannot solely serve the wealthiest customers. They must serve the needs of low- and moderate-income households as well. Accordingly, if nonbanks become stablecoin issuers, they should be held to CRA-like standards as they will also rely on a supervisory regime that assures consumers stablecoins are sound ways to store money within their institutions.<\/span><\/p>\n

Stablecoin legislation should require stablecoin issuers to reinvest a portion of their proceeds into community development projects in underserved communities. This would not be difficult from a regulatory perspective as the OCC, FDIC and the Federal Reserve already have established methods for rating a bank\u2019s community development performance. Traditional deposit insurance is a form of public subsidy to the banking industry, in exchange for which banks accept obligations to the public interest. The same exchange should apply to stablecoin issuance.<\/span><\/p>\n

Applying community development obligations to nonbank stablecoin issuers would likely drive billions of dollars into needed community and economic development projects and initiatives. In 2023 alone, banks originated over $127 billion in loans that meet the CRA\u2019s definition of community development for LMI communities and households. In addition, ensuring community development conditions are being met by nonbank issuers would also allow for a more level playing field between banks, especially community banks \u2013\u00a0 and nonbank issuers.<\/span><\/p>\n

 <\/p>\n

Bakari Levy<\/a> is a Government Affairs Associate with NCRC’s Policy team.<\/em><\/p>\n

Kevin Hill<\/a> is a Senior Policy Advisor with NCRC’s Policy team.<\/em><\/p>\n

Photo credit: Marta Branco via Pexels.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

A stablecoin is a digital asset that can represent virtually any national currency. In most cases, stablecoins are assigned 1:1 to the US dollar, but can also be pegged to other international currencies, such as the Euro or Yuan. In the past five years, the size of the stablecoin market has risen from approximately $5 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