Community Banks Urge Ban on Stablecoin Customer Rewards

Community bankers urged federal and state regulators to prohibit programs that pay customers in dollar‑pegged stablecoins, arguing the incentives pose safety, consumer protection and systemwide risks to the banking system.

In recent letters and meetings with regulators, community banking groups described reward programs that give small amounts of stablecoins to customers for opening accounts, keeping balances or making transactions. The groups noted those tokens are often redeemable for dollars or tradable on cryptocurrency platforms.

Bankers argued that paying customers in stablecoins can reduce insured deposits when recipients convert tokens or move value to nonbank wallets and platforms. They identified a risk that such outflows would weaken banks’ core funding and increase liquidity pressure at institutions that rely on stable deposits.

The filings and discussions highlighted additional concerns about the tokens and the firms that issue or custody them. Community bankers pointed to potential liquidity and credit risks at issuers and custodians, and to gaps in oversight for entities that do not face bank capital, liquidity and disclosure rules.

Representatives also raised anti‑money‑laundering and monitoring issues, saying the cross‑border and near‑instant transfers common with token transactions could complicate banks’ ability to trace flows and meet compliance obligations.

The groups asked regulators to take specific actions, including treating stablecoin reward programs as off‑balance-sheet deposit substitutes or explicitly banning banks, their affiliates and chartered banking companies from using deposit balances to fund stablecoin incentives. They requested that stablecoin issuers and custodians be subject to capital, liquidity and disclosure requirements comparable to those for banks.

Community bankers urged a uniform federal approach rather than a patchwork of state rules, warning that inconsistent standards could prompt firms to offer token rewards from jurisdictions with weaker oversight. The requests included calls for clear supervisory guidance, enforcement against violations of existing laws, and formal rulemaking to prohibit paying customers in stablecoins for onboarding or deposit promotion.

Regulatory scrutiny of stablecoins has focused on reserve disclosures, the liquidity of backing assets and issuer governance. Stablecoins are digital tokens designed to hold a stable value against a fiat currency, most commonly the U.S. dollar, and they are issued and held by a variety of firms and custodians.

Bankers noted that rewards programs paying consumers in stablecoins have become more prominent as digital‑asset firms and some fintech platforms expand marketing to attract deposits and customer activity. Community banking groups stated those programs change the nature of deposits and asked regulators to prohibit the practice to protect consumers and the stability of the banking system.