Community Banks Wary of Stablecoins Amid Deposit and Lending Concerns

A recent survey by the Conference of State Bank Supervisors reveals that most community bankers are wary of stablecoins, fearing they could erode deposits and reduce lending capacity. The survey, which included responses from 330 banks across 35 states, found that 60.2% of respondents view potential deposit outflows as a significant concern. Only 1% of the banks currently offer stablecoin services, and the vast majority have no plans to introduce them within the next 12 months.

Jim Kisch, CEO of Passumpsic Savings Bank, expressed concerns about trillions of dollars potentially migrating out of the traditional banking system. He emphasized the need for a level playing field and uniform regulatory frameworks to prevent nonbank competitors from exploiting regulatory arbitrage. The survey results were presented during the Federal Reserve Bank of St. Louis' annual Community Banking Research Conference.

Despite the widespread caution, some community banks are exploring stablecoin services. About 16% of respondents plan to offer stablecoins within the next year, while 17.5% are considering tokenized deposits. However, the overall sentiment among bankers is that stablecoin adoption poses greater risks than opportunities. Julianne Baer, a senior manager at the Federal Reserve Bank of St. Louis, noted that bankers see stablecoins as a risk rather than a revenue-generating opportunity.

United Bank in Georgia is one institution actively considering stablecoins and tokenized deposits. CEO James Edwards does not see an immediate threat but anticipates growth, particularly in cross-border payments. He stressed the importance of operating within the same regulatory environment as nonbank competitors. The GENIUS Act, signed in July 2025, is expected to provide a comprehensive regulatory framework for stablecoins starting in early 2027.