Small Community Banks Threatened by Evolving Crypto Industry

•The Independent Community Bankers of America (ICBA) are calling on lawmakers and regulators to rein in the cryptocurrency industry.
•Small community banks are seen as „darlings“ of Washington policymakers, and they have a „deep well of Washington clout“.
•Central bank digital currencies could sideline small banks by providing a direct channel between the central bank and citizens’ wallets, without needing banking third parties.

Independent Community Bankers of America (ICBA) Urge Regulation of Crypto

The Independent Community Bankers of America (ICBA) is calling for lawmakers and regulators to take adequate oversight of cryptocurrencies. ICBA President Rebeca Romero Rainey recently sent a letter to Congress urging them to take action against non-bank stablecoin issuers‘ efforts to gain access to the Federal Reserve master account.

Small Banks Have „Deep Well Of Washington Clout“

Small community banks are seen as “darlings” of Washington policymakers on both sides of the political spectrum, and they have a “deep well of Washington clout” according to an article in Politico today. Paul Merski, leader of ICBA’s congressional relations, believes that crypto should not be part of the traditional banking system. The ICBA states that its lenders constitute 99% percent all banks across America. Merski says: “We don’t draft the legislation but we’re probably often the first trade association that members turn to to get our review and opinions.“

Crypto Understanding Lacking Among Small Banks

It is unclear how much understanding small community banks have about central bank digital currencies (CBDCs). They may not understand what crypto brings to the financial table or newer technologies such as stablecoins or DeFi protocols. These banks are mostly trying to protect their industry from what they perceive as a threat. It is likely that they would be sidelined if CBDCs become mainstream, since retail CBDCs would create a direct channel between citizens‘ wallets and central banks without needing any third party banking services.

Will Small Banks Embrace Crypto To Survive?

The future for small banks looks increasingly uncertain now that CBDCs are entering into mainstream use cases. In order for these smaller banks to survive, it is possible they will need to embrace crypto by providing custody services at least initially. Nonetheless, it appears their days may still be numbered regardless due to being replaced by direct channels between citizens’ wallets and central banks via CBDCs which wouldn’t require them as middlemen anymore.


The possibility exists for larger commercial banks finding some place in CBDC systems with wholesale currencies but this does not appear likely for smaller community banks who might struggle with understanding new technology such as DeFi protocols or stablecoins let alone competing with more efficient solutions provided by CBDCs directly from central bank authorities themselves.