By Natalie Blanning
California’s community banks play a quiet but essential role in supporting the state’s economy. From the Central Valley to the Central Coast and throughout rural and suburban communities, these institutions provide the local lending and financial stability that entrepreneurs, small businesses, and farmers depend on every day. As Congress debates digital asset regulation, it is critical that policymakers ensure new laws do not unintentionally undermine the local banks that keep California’s economy moving.
I share this commentary on behalf of the Consumer Alliance for a Strong Economy (CASE), a non-partisan organization formed in 2002 to educate and inform Americans about public policy issues that affect their businesses, their livelihoods, and their future. CASE represents more than 10,000 members, including entrepreneurs, small business owners, and farmers across California who rely on stable, locally invested banking institutions.
Community banks are locally owned and locally invested. Their deposits come from entrepreneurs, small business owners, and farmers who trust that their savings will be reinvested close to home. That stable deposit base allows banks to provide operating loans, equipment financing, and long-term capital to businesses essential to California’s economy. When markets fluctuate or costs rise, community banks are often the first and most reliable source of support.
That stability, however, may now be at risk due to a loophole in the GENIUS Act, which regulates stablecoins—digital assets typically backed by the U.S. dollar or U.S. Treasury securities. While the legislation appropriately prohibits stablecoin issuers from paying interest, it does not clearly prevent affiliated entities from offering rewards tied to stablecoin holdings. This ambiguity allows crypto platforms to market “high-reward” stablecoins that compete directly with community bank deposits—without providing local lending, relationship-based financing, or small-business support.
Financial experts warn that such incentives could accelerate deposit migration away from traditional banks. The U.S. Treasury has estimated that stablecoin growth could place trillions of dollars in bank deposits at risk over time. Even modest deposit shifts can significantly affect community banks, which rely heavily on stable local deposits to support lending.
If deposits decline, lending declines as well. That means fewer loans for entrepreneurs starting businesses, fewer financing options for farmers investing in equipment and land, and fewer resources for small employers seeking to grow and hire. In communities throughout California, where local credit access already plays a critical role in economic resilience, the ripple effects could be substantial.
Innovation in digital finance is important, and responsible regulation can help support its growth. But federal policy should not create unintended incentives that weaken the very financial institutions that support local economies.
That is why CASE urges US Senators Alex Padilla and Adam Schiff to advocate with their colleagues on the United States Senate Committee on Banking, Housing, and Urban Affairs to close this loophole. Ensuring stablecoins cannot be marketed with reward-based incentives tied to deposits would help maintain a level playing field between emerging financial technologies and the community banking system.
California’s entrepreneurs, small business owners, and farmers depend on the stability of local financial institutions. Congress still has time to act to protect that foundation. Closing this loophole would ensure innovation moves forward without undermining the community banks that sustain California’s economy and the people who depend on them every day.
About the Author: Natalie Blanning is the Executive Director for Consumer Alliance for a Strong Economy.
