How Stablecoins and Non-Banks Threaten Community Lending with Guests Brian Laverdure and Mickey Marshall
Wrestling Payments Podcast: Season 4 - Episode 01
Episode Summary
Joe Casali joins Brian Laverdure and Mickey Marshall from the Independent Community Bankers of America (ICBA). They examine the friction between fintechs and traditional banking. As non-banks take over mortgage lending and payments, a regulatory gap grows between them and regulated institutions.
Mickey highlights the specific risks of the OCC National Trust Bank charter. Crypto firms utilize this loophole to issue stablecoins without standard bank supervision. Brian details recent legislative moves and the urgent need for clear frameworks. These gaps allow companies to offer deposit-like products without FDIC insurance or community reinvestment requirements.
The group connects these trends to local economic threats. If deposits shift from local banks to stablecoin wallets, funding for small business loans and mortgages vanishes. Brian and Mickey urge bankers to study these complex technologies. Advocacy helps ensure fair rules protect both the financial system and consumers.
Guest-at-a-glance
💡 Name: Brian Laverdure
💡 What he does: Vice President, Payments and Technology Policy
💡 Company: Independent Community Bankers of America (ICBA)
💡 Noteworthy: Specializes in digital asset policy and cross-border payment frameworks for community institutions.
💡 Where to find him: LinkedIn
💡 Name: Mickey Marshall
💡 What he does: Vice President and Regulatory Counsel
💡 Company: Independent Community Bankers of America (ICBA)
💡 Noteworthy: Legal expert handling payments, novel bank charters, and cryptocurrency regulatory challenges.
💡 Where to find him: LinkedIn
Key Insights
The OCC Charter Loophole Creates Unsupervised Banks
Traditional banks operate under strict rules to ensure safety and community support. However, fintech and crypto companies now utilize the Office of the Comptroller of the Currency (OCC) National Trust Bank charter to bypass these standards. This charter, originally designed for fiduciary services like estate planning, allows companies to issue stablecoins and hold reserves without Federal Reserve supervision. These entities avoid the Bank Holding Company Act and the Community Reinvestment Act. They offer products that appear to function like checking accounts but lack FDIC insurance. This regulatory arbitrage creates a two-tiered system where non-banks operate with significant competitive advantages. They effectively act as banks but avoid the compliance costs, capital requirements, and safety nets required of traditional community institutions, placing the broader financial system at risk.
Stablecoin Growth Drains Capital from Local Economies
Community banks rely on deposits to fund loans for small businesses, farms, and mortgages. When consumers move funds into stablecoins, that money exits the local economic cycle. Unlike bank deposits, which institutions lend back out to neighbors, stablecoin reserves typically sit stagnant in U.S. Treasury securities. Even a modest shift of deposits toward stablecoins removes billions of dollars from the lending market. This process, known as disintermediation, drastically reduces the capital available for Main Street economic growth. If trillions of dollars eventually migrate to digital assets as predicted, the ability of local banks to support their communities diminishes. Money effectively sits in a government vault rather than building houses or expanding local businesses, fundamentally changing the resource availability for local development.
Liquidity Risks Persist Despite Reserve Backing
Many consumers mistakenly view stablecoins as equivalent to digital dollars in a bank account. While issuers claim these tokens are backed one-for-one by liquid assets like Treasuries, they lack the stability mechanisms of the traditional banking system. A "run" on a stablecoin issuer creates immediate danger. If a high volume of users redeem tokens simultaneously, the issuer must liquidate massive amounts of Treasury securities at once. This fire sale can dislocate market prices, meaning the issuer cannot return a full dollar for every token. Without FDIC insurance or access to federal backstops, there is no safety net. Consumers holding these assets face the risk of loss, often without realizing they gave up the protections inherent in the regulated banking system. The complexity of unwinding these organizations further complicates recovery.
Episode Highlights
Defining the Role of Community Bankers
Timestamp: [00:00:37]
Mickey Marshall introduces the Independent Community Bankers of America (ICBA) and establishes its critical position within the financial ecosystem. She explains that the association represents thousands of community banks, which differ significantly from regional or national giants in their operations and community footprints. The ICBA acts as a necessary safeguard to ensure these smaller institutions maintain a voice in Washington during legislative and rulemaking processes. Marshall emphasizes the need for tailored compliance frameworks because regulations designed for massive banks often prove unworkable for community-focused lenders. By advocating for distinct rules, the ICBA helps preserve the viability of local banks that drive small business and farm lending across the country.
"The ICBA, we are an association of community banks. So we traditionally represent the smaller side of the banking sector. And our job is basically to make sure that they're not forgotten about in Washington and that their voice is represented in the legislative process and the rulemaking process."
Navigating the Stablecoin Rulemaking Race
Timestamp: [00:09:25]
Brian Laverdure outlines the complex legislative environment following recent committee actions on stablecoin regulation. He explains that while legislation establishes a rough framework for payment stablecoins, it initiates a high-stakes race for regulators to finalize the rules. The coming year will be dominated by rulemaking as agencies define key terms and set standards before the act's effective date. Laverdure specifically highlights a critical distinction in the proposed rules regarding interest payments. While issuers themselves are prohibited from paying yield on stablecoins to maintain stability, this ban does not necessarily extend to intermediaries like crypto exchanges. This nuance creates a fragmented regulatory landscape that community bankers must monitor closely to understand their competitive position.
"Payment stablecoin issuers... we really stress that point. The issuers are prohibited from paying interest or yield solely in connection with holding a payment stablecoin, that does not extend to intermediaries like crypto exchanges, and crypto exchanges. Of course, today they're actually doing that."
The Expansion of National Trust Charters
Timestamp: [00:11:53]
Mickey Marshall details how the Office of the Comptroller of the Currency (OCC) expanded the National Trust Bank charter through an interpretive letter rather than formal legislation. She argues this move effectively created a regulatory loophole by permitting these banks to engage in non-fiduciary custody activities. This interpretation allows cryptocurrency companies to apply for charters primarily to manage stablecoin reserves rather than providing traditional trust services. Marshall points out that major players in the crypto space are utilizing this pathway to gain legitimacy. The result is that these entities can facilitate stablecoin issuance and potentially access master accounts, fundamentally changing the nature of a charter that was originally intended for standard asset management and fiduciary duties.
"This was a letter that was done without any formal rulemaking, without a change in statute. But like any loophole, it sort of becomes, it swallows the whole rule. And that's what we're seeing here with some of these cryptocurrency companies. So you've had a number of applications from crypto companies."
The Critical Need for Banker Education
Timestamp: [00:39:06]
Brian Laverdure stresses the urgent need for community bankers to close the knowledge gap regarding cryptocurrency and stablecoin technologies. He notes that while these digital assets share similarities with traditional payment systems, the technical differences are significant and require dedicated study. Laverdure argues that education is the prerequisite for effective advocacy. With major regulatory rulemaking currently in progress, bankers cannot afford to remain on the sidelines. To ensure the emerging legal framework addresses their concerns and protects their communities from potential risks, financial professionals must understand the mechanics of these assets. Only through deep understanding can the industry effectively engage with policymakers and influence the rules that will govern the future of finance.
"There are some pretty big differences. And it's really important now for bankers to start diving into these details because... the regulatory rulemaking is underway. So if you want your voice to be heard, if you want a regulatory framework that addresses the concerns of community banks... It starts with education."
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