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Clarity Act stablecoin rewards debate raises concerns for community banks

A South Dakota community banker argues that without tighter limits, deposits could move to stablecoin wallets even if issuers hold reserves, reducing local funding for loans.

Reported · Written up by our desk · Regulation

CoinDesk reports on a debate over the Clarity Act’s stablecoin rewards provisions, with Summer Mersinger saying stablecoins can improve payments and should not be regulated out of existence.

In response, a South Dakota community banker writing for CoinDesk disputes the claim that harm to smaller banks is hypothetical, arguing that deposit flight is a realistic outcome even when stablecoin issuers must hold reserves.

The banker says if a customer moves $100,000 from a bank into a stablecoin wallet, the funds do not disappear from the broader financial system, but the customer’s bank loses funding that would otherwise support local credit, including if stablecoin issuers buy Treasury securities.

They add that community banks in South Dakota have about $47 billion in deposits at local branches and warn that Congress should tighten restrictions on stablecoin rewards to avoid losing deposits that support agricultural, ranching, and small-business lending.

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