Bankers’ Bank seeks insights into stablecoin use cases

While the term “stablecoin” is being bandied about the industry with increasing fervor, the understanding of how this digital asset will help, or perhaps hinder, community banks or their customers, is only beginning to come into focus..A new committee formed to explore how emerging digital payment technologies — including stablecoins and deposit coins — could shape the future of community banking has taken shape at Madison, Wis.-based Bankers’ Bank, with the goal of bringing needed clarity to its customers. The committee is composed of experts from payments and cash management, commercial banking, investments, compliance, and audit to evaluate tokenization opportunities and stablecoin operational considerations.The momentum on stablecoin increased last July after President Trump signed the GENIUS Act, which established regulatory guidelines for payment stablecoins. But those guidelines are like the empty frame of a house, explained Matt Sitkowski, EVP/COO of Bankers’ Bank, who leads the correspondent bank’snew Asset Tokenization Committee. Those guidelines have “no walls, nothing inside,” he said. “The devil is in the details and right now those details are being fought over between the banking [industry] and the crypto [industry] as to what we can do and what we can’t do.”.That’s not meant to sound discouraging because there are things bankers can and should be doing with regard to preparing for this “house” once it’s move-in ready, Sitkowski said. Foremost, bankers should be querying their customers on their money-movement pain points. “Start talking to commercial customers — small business customers, especially the manufacturers and the farmers,” Sitkowski said. Farmers, he said, can be the most frequent users of international payments tools.In the context of stablecoin and faster payments, community bankers need to know what customers are thinking. “What are they doing? How are they managing their business today?” Sitkowski said. “Other than moving funds faster, are they seeing a benefit to this, because I don’t know if it’s going to be any cheaper.”Sitkowski said international money transfers are a natural use case for stablecoin. Bankers’ Bank has one bank customer in Illinois who uses stablecoin for international money transfers, although they have been initiated for the benefit of the bank’s owner, who lives overseas. The bank’s customers are not deriving value from that operation as of yet. Beyond this one instance, the stablecoin use case becomes murkier. “Ultimately, it doesn’t matter how you move [funds]. At the end of the day, you’re gonna have to convert it to fiat currency, and someone’s going to pay a price for that,” he said.The work of the committee is aligned with the Bankers’ Bank mission, which is to bring products or services forward for its 600 customer institutions. Most of its customers have fewer than $1 billion in assets, meaning they have neither the capital nor the talent to tackle all manners of digital innovation. With stablecoin, most don’t even know where to start. “The reality is that we need to take a leadership role,” Sitkowski said. The formation of this committee is the bank accepting the fact that “there is a potential for this to be impactful to our clients and their clients. ... We’re going to tell you where you can start.”One of the challenges banks face before adopting stablecoin is that it will need to form a separate subsidiary, which adds to the cost; this subsidiary then needs to gain access to a blockchain — a private one, not a public one.A blockchain is a shared digital ledger maintained across independent participants; it is distributed, immutable and transparent, meaning its activity can be independently verified. Functionally, Sitkowski explained, a blockchain resembles a continuously reconciled general ledger with near real-time settlement. A private blockchain has its access restricted to approved participants, and is governed by an operating entity or consortium. By contrast, public blockchains are open to anyone for reading, transacting or validating. Bitcoin is an example of a public blockchain. Basic education on stablecoin is the early work of the committee, Sitkowski said. “We all sat around and said ‘let’s make sure we’re on the same page, we understand the flow, we understand what our customers’ customers are looking for,’” he said.It also has to be secure. Sitkowski mentioned DTCC and Fiserv, two global companies that offer settlement connectivity services. “They’re already playing in the space; they’re just starting up their blockchain ... taking it as slow as everybody else,” he said, “as their attitude is, ‘It’s gotta work. It’s got to be secure more than anything.’”Yet businesses, while interested in faster payments, aren’t yet pushing their banks to adopt stablecoin, Sitkowski concluded. He believes that will eventually change, however, and the $1.5 billion Bankers’ Bank, which was founded in 1981 as Wisconsin Independent Bank and adopted its current name in 1993, does not want its customers languishing behind the curve. “That’s our responsibility.”Bankers’ Bank already acts as a payments partner for its customers, processing nearly $1 trillion annually, and it operates the largest Fed-connected payments system in Chicago. The bank, Sitkowski said, “is uniquely positioned to deliver secure, real-time settlement and funding for client banks.”Beyond payments, blockchain networks support broader financial use cases, extending to critical banking operations. These include:• Tokenized deposits, which represent bank liabilities on a blockchain, enabling instant, programmable settlement for interbank and corporate transactions.• Syndicated lending, which streamlines coordination, administration and settlement processes for complex multi-bank loan agreements.• Interbank reconciliation, which utilizes shared, immutable ledgers for near real-time, transparent reconciliation and dispute resolution between banks.Once Bankers’ Bank whiteboards realistic use cases, it will assess the capital investment necessary to determine if it can provide the blockchain infrastructure for its customer banks, Sitkowski said. “I’ve got eight community bank presidents sitting on my 11-person board,” he said. “They are customers as well. They feel the pressure of what they need to be [working toward], and they’ll control the speed of this thing. If they say, ‘hit the gas,’ we'll make that commitment.”That said, will stablecoin ever become a community bank’s bailiwick? “Community banks are really good at a couple of things,” said the 63-year-old Sitkowski who started in banking at the age of 16. “They’re really good at lending money and they're really good at taking deposits.”But what he’s hearing is that bankers “want to be able to hang on to their customers; they want to be able to ensure that they can grow that relationship.” If stablecoin offers a banker that opportunity, Bankers’ Bank is willing to help them.