Stablecoins, the GENIUS Act, and the Future of Community Banking

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The passage of the GENIUS Act marks a turning point in the U.S. financial system: stablecoins are no longer a gray-market innovation but a formally recognized part of the regulatory landscape. While advocates such as the Independent Community Bankers of America (ICBA) emphasize the “guardrails” built into the law, the broader question remains: will stablecoins strengthen or weaken community banks and the communities they serve?

This debate matters because community banks play an outsized role in local economies. According to the FDIC, they make up 60% of small business loans and 80% of agricultural loans nationwide — sectors that big banks and fintechs often underserve. If stablecoins disrupt deposit bases, the ripple effects could extend far beyond Wall Street to Main Street.

Unlocking Value for Community Banks

Stablecoins are often portrayed as a threat, but they also present a set of opportunities that community banks are uniquely positioned to capture if they act decisively and intentionally.

Real-Time, Low-Cost Payments

Stablecoins settle instantly at near-zero cost compared to legacy rails like ACH, which can take days, or wire transfers, which can cost $15–$30. According to the Federal Reserve, U.S. small businesses spend over $120 billion annually on payment processing fees. By integrating stablecoin payments, community banks can deliver faster and cheaper solutions that help keep small businesses within the banking ecosystem.

Critics argue that nonbank wallets or fintech platforms will dominate here, since they can scale faster and may even offer indirect yields that banks cannot. But community banks already have two advantages fintechs lack:

Trusted deposit relationships and,
Direct access to the Federal Reserve’s payments system.

With the infrastructure already in place, a bank-issued stablecoin can be seamlessly tied to checking accounts, loans, and treasury management services that fintechs cannot replicate.

In other words, the opportunity isn’t about matching fintechs on speed or cost, but rather embedding stablecoin rails into the full range of community bank services, making it easier for businesses to keep all of their financial activity under one trusted roof.

Serving Underserved and Rural Communities

More than 5.9 million U.S. households remain unbanked (FDIC, 2021), and many live in rural areas where branch closures have left financial deserts. Community banks are already the primary safety net in these places: as of 2020, over 71% of rural bank branches were operated by community banks and those institutions held nearly two-thirds of rural deposits. In states with large rural populations, community bank branches average 56% of all commercial bank branches compared with just 28% in more urbanized states (Kansas City Fed).

Stablecoins paired with mobile wallets could expand that reach even further, allowing community banks to serve households without requiring new branch investment. Some worry customers might gravitate toward big-tech branded stablecoins, but community banks have two assets those firms lack: a history of trust in underserved markets and, under the GENIUS Act, the ability to issue coins fully backed by audited reserves.

Deepening Small-Business Relationships

Payments remain a persistent pain point: in a 2024 Federal Reserve survey, 62% of small firms cited “slow or costly payment processing” as a top challenge. Stablecoins allow banks to pair lending with real-time payments, payroll, or invoicing which can turn what is now a friction point into a competitive advantage.

Rather than trying to mimic fintechs, community banks can integrate stablecoin rails directly into the products their business customers already rely on: lines of credit, equipment loans, and treasury services. That creates a smoother, more reliable experience for small firms, while reinforcing the community bank’s role as a partner in growth.

Skeptics contend that network effects will push most businesses toward the most liquid, nationally recognized coins like USDC or PayPal’s token. While that is a legitimate concern, consortium models (groups of community banks issuing a joint stablecoin) can deliver both scale and trust. We’ve already seen similar collaboration succeed in fintech investments through groups like Alloy Labs Alliance.

Preserving Deposits Through Bank-Issued Stablecoins

The fear most often raised by stablecoin critics is deposit flight. The Bank Policy Institute has warned that if even 10% of U.S. deposits migrated to stablecoins, that could mean nearly $2 trillion exiting the banking.

But this risk overlooks the strategic opportunity: if community banks issue stablecoins themselves, those funds stay within the bank. Instead of deposits drifting into coins backed by big tech or Wall Street, they remain on balance sheet as tokenized deposits. Balancing both worlds – usable in the digital economy but still supporting local lending.

In fact, this model could help banks attract deposits from younger, digital-first customers who are more likely to hold value in wallets than in traditional checking accounts. A recent Morning Consult survey found that 27% of U.S. adults under 35 say they would be more likely to bank with an institution that offers crypto-related services. Bank-issued stablecoins meet that demand while keeping deposits in safe, insured institutions rather than unregulated platforms.

Of course, this advantage only holds if regulation closes loopholes that allow nonbank wallet providers to skirt oversight or effectively pay yields that banks cannot. Without strong, consistent guardrails, deposits could still leak out of the system. The GENIUS Act makes progress by requiring 1:1 reserves and audits, but community banks must continue pressing regulators to ensure that all players operate under rules that protect the safety and stability of local deposits.

New Revenue Streams Through Innovation

While the GENIUS Act prohibits issuers from paying yield, banks can still earn income through reserve management, transaction fees, and programmable payment services like escrow or conditional lending. Fintechs are already monetizing these areas but community banks, by combining innovation with trust and compliance, could capture a share of this new market.

Some argue that increased compliance costs will outweigh potential gains for smaller banks. That is a fair concern. But the alternative is worse: losing relevance entirely as deposits and payments migrate to unregulated platforms. By forming partnerships or consortia, community banks can spread these costs and remain competitive.

The Path Forward

Stablecoins are neither a guaranteed threat nor a guaranteed win for community banks. What matters is execution:

- Engage in rulemaking to ensure wallet providers face the same oversight as issuers.
- Build consortia to achieve scale in issuing and distributing stablecoins.
- Integrate stablecoin rails into core lending and payments products, especially for small businesses and farmers.
- Educate customers on the difference between safe, bank-backed stablecoins and unregulated alternatives
- Stress-test balance sheets against different adoption scenarios to prepare for deposit volatility

Stress-test balance sheets against different adoption scenarios to prepare for deposit volatility.

Conclusion

Community banks may not all welcome the arrival of stablecoins, and skepticism is understandable. But like every wave of emerging technology, from online banking to mobile apps, stablecoins are here because customers want them. Younger generations, small businesses, and even rural households are demanding faster, cheaper, and more digital ways to move money.

The GENIUS Act sets the ground rules, but it doesn’t decide who will win. That depends on how community banks respond. By embracing stablecoins as a tool, community banks can meet customer expectations while keeping deposits safe, local, and productive.

Stablecoins will play a role in the future of finance. The real question is whether community banks will sit on the sidelines or lead the way.