Partnerships possible between community banks, stablecoins

Covering BankBeat magazine’s April cover story on stablecoins in banking reiterated my belief that the emerging payment can be a valuable addition for banks and help stem the flow of deposits to less-regulated nonbanks..While researching the piece, I read two interesting reports. One was a 2023 J.P. Morgan study revealing 88 percent of deposits that left the traditional banking system during the 2020 crypto bull run never returned. That struck me, as deposits fleeing to less regulated non-banks is frequently cited as a top concern for community bankers. The second report covered the stablecoin market cap, which was around $300 billion as of early February. J.P. Morgan predicted the market cap could reach $500 billion by 2028, while Standard Chartered estimated the global stablecoin market could hit $2 trillion. Being open to serving the industry could help stem the deposit exodus to crypto/stablecoin issuers, especially as research shows stablecoin holders are more likely to be young and tech savvy, or business owners in emerging markets.What especially struck me in covering the piece were comments from First Independence Bank CEO Kenneth Kelly. Speaking earlier this year during an American Bankers Association conference, Kelly said bankers need to consider whether to accept stablecoins or realize they will be controlled outside the traditional banking system. Though serving stablecoins/cryptocurrency customers carries a compliance burden, meeting the regulatory requirements is possible through proactive communication with supervisors, especially as the Trump administration is more open to serving the industry than the Biden administration.Whether stablecoins are the right fit depends on the needs/business plan of each community bank. However those willing to engage with the emerging technology face the right time. Doing so could help stave off a deposit exodus to nonbanks — or other community banks already serving the sector.