Congress must bar interest on payment stablecoins to avoid harming Main Street lending

Core Insights - The article highlights the risks posed to small businesses and job creation by allowing payment stablecoin issuers and intermediaries to offer yield or interest on stablecoin holdings, emphasizing the need for Congress to extend prohibitions on such practices [1][2]. Group 1: Impact on Community Banks - Community banks play a crucial role in providing credit and banking services to local communities, supporting small-business innovation and economic growth [2][5]. - Allowing crypto exchanges to offer yield-like incentives on payment stablecoins could lead to a significant reduction in community bank lending by $850 billion, resulting from a $1.3 trillion decrease in deposits [2][5]. - Community banks currently hold $4.8 trillion in deposits, which fuel $4 trillion in total lending activity, indicating that any reduction in lending would severely impact access to credit in local communities [5]. Group 2: Effects on Small Businesses - Small-business lending is predominantly driven by community banks, with small-business loans at these banks being more than double the rate at regional and large banks [6]. - Local businesses are more likely to receive approval for credit applications at community banks, which are essential for job creation, as small businesses account for over half of the nation's job growth and nearly 73% of its workforce [6]. Group 3: Risks from Stablecoins - The Federal Reserve estimates that stablecoins could grow from $300 billion to trillions by the end of the decade, which raises concerns about the impact on bank deposits and lending [3]. - As retail deposits shift to stablecoins, banks may face increased liquidity risk and funding costs due to more concentrated, uninsured wholesale deposits [3][4]. - The pressures from stablecoins could lead to declining bank credit, particularly affecting small businesses that rely on relationship banking, potentially accelerating banking industry consolidation [4].