The Independent Community Bankers of America (ICBA) filed a comment letter on October 20, the last day of the comment period, pressing the Securities and Exchange Commission (SEC) not to finalize Regulation Crypto Assets until it studies how the rule would affect community-bank deposits and local lending. The letter argues the SEC has not analyzed how the proposal could combine with its wider crypto agenda to shift funding away from small banks.

What the SEC Proposed and What ICBA Seeks

The proposal, published in the Federal Register on August 21, would exempt certain crypto-linked investment contracts from registration under the Securities Act in exchange for principles-based disclosures. One exemption covers raises of up to $5 million over four years, while a second permits up to $75 million in each 12-month period. A conditional safe harbor would also allow a token to stop being treated as subject to an investment contract.

The rule governs securities offerings rather than stablecoins, but ICBA draws a connection through the rule's stated purpose. Making issuance cheaper and less risky is intended to bring more tokens, trading and participants into the market, and the letter contends that much of that activity runs on stablecoins — tokens designed to track the value of a fiat currency such as the dollar — which operate as trading pairs, collateral and the bridge between bank money and blockchains. By that logic, more trading means more stablecoin balances funded out of community-bank accounts.

The letter also points to a slower-moving channel. The SEC wants exempted tokens to spread quickly and build network effects, and ICBA argues those networks could eventually carry payments that compete directly with checking accounts.

ICBA stops short of claiming the proposal by itself would drain a measurable sum. It frames the risk as cumulative: the rule sits alongside the SEC's other work on trading platforms, custody, broker-dealer treatment and tokenization, and the group says it sees no analysis of what the combined package would mean for bank funding. The request rests on Section 2(b) of the Securities Act, which requires the SEC to weigh efficiency, competition and capital formation — and, in ICBA's view, capital formation should also count deposits diverted from small-business and farm lending.

The group's asks are sequenced: first, a supplemental economic analysis prepared with the federal banking agencies; then, measures written into the final rule itself.

Deposits Don't Vanish — They Change Banks

Consider a customer who moves $10,000 from a community bank to buy newly issued stablecoins, with the issuer keeping the backing cash at a large bank. If the issuer buys Treasury bills instead, part of the money can still return to banks, because the dealers selling the bills deposit the proceeds. Federal Reserve staff economists, writing in a May note that reflects their own views rather than Fed policy, conclude that stablecoins can change the mix of deposits without shrinking the total one-for-one.

That shift in mix is what unsettles local lenders. ICBA separates lasting losses from one-off trades: “The concern is durable displacement, not merely a one-time transfer.” Buying an existing token simply moves dollars from the buyer's bank to the seller's. The deeper risk is customers who begin keeping working balances in stablecoin wallets than local checking accounts.

Those balances can concentrate at a handful of institutions. Circle says most of the USDC reserve is held in a government money market fund managed by BlackRock, with the remaining cash sitting mostly at a few of the world's largest banks, according to its transparency disclosures. A September 2025 Fed survey of senior bank finance officers, cited in the same note, found that about 40% of respondents plan to prioritize holding reserve assets for stablecoin issuers. ICBA warns such balances may be more rate-sensitive and quicker to move than local operating deposits.

What Losing Them Costs a Community Lender

ICBA's members lend to small businesses, farmers, ranchers and homebuyers, many of whom have few other credit options, and local deposits fund that lending. When an operating account leaves, the letter says, a bank loses both the funding and its payment relationship with the customer, and replacement funding may cost more. Smaller banks, it adds, have fewer replacement options and less room to absorb outflows that persist.

The letter sketches a hypothetical funding gap to show the mechanics. A bank can absorb a persistent shortfall as lower profit, charge more on loans, or drop loans whose margins no longer cover the cost. The figures in the scenario are illustrative, the group notes, not an estimate of stablecoin losses.

For the wider stablecoin threat, ICBA cites far larger figures. In earlier letters to the OCC and FDIC on rules under the GENIUS Act, the federal statute that sets the framework for stablecoin issuers, it modeled a scenario in which stablecoin yield or rewards draw up to $1.3 trillion away from community banks and cut their lending capacity by about $850 billion. The group says those numbers do not estimate this SEC rule, which would work through a different route. On the link between deposits and credit, it cites University of Pittsburgh professor Leming Lin, whose research found that stock market booms slow deposit growth and tighten credit for small private firms.

Banks Can Compete on Price — at a Cost

A BIS working paper published on October 13 shows the lever banks hold. Rashad Ahmed and Iñaki Aldasoro used weekly US data from January 2019 to June 2025 and found that higher deposit rates were followed by slower stablecoin growth, making the two partial substitutes. The effect was stronger for USDC than for USDT, which the authors link to USDC's closer ties to US depositors.

That supports the case that banks can compete with stablecoins by paying savers more. For community banks, though, it is a trade-off: higher deposit rates raise the same funding costs ICBA wants the SEC to examine. The May Fed note makes a similar point, saying competition for liquid balances could lift deposit rates or squeeze bank margins.

Smaller banks have adapted more slowly in earlier contests, according to the same note. When money market funds drew savings away in the 1970s and early 1980s, many community banks lacked the scale to offer sweep accounts or match rates. In digital payments, large banks built rival products earlier, while smaller ones often relied on third-party providers. The BIS authors also observe that banks lobbied against money market funds then, as they press for limits on stablecoins now.

Some evidence cuts the other way. Foreign demand for dollar stablecoins can add deposits at US banks when issuers hold reserves domestically, the Fed economists write. The BIS paper, for its part, tracks where savers put their money and does not show that stablecoin growth reduces total deposits or lending.

What Would Settle the Question

With comments closed, ICBA's case now sits in the SEC's record, a docket the agency posts publicly. Under notice-and-comment rulemaking, the Commission's options from here run from adopting the proposal as written to revising it in light of the comments or withdrawing it, and whether ICBA's call for a supplemental analysis prepared with the federal banking agencies gets addressed is the nearest marker to watch. Testing the group's case would take bank-level data: which lenders lose balances for good, which collect the reserves, what replacement funding costs, and whether local lending slows as a result. National totals would reveal little, since the money can stay in the system while changing hands. For community banks, the outcome turns on two prices: what it costs to replace lost deposits, and what it costs to keep them.

This article is for informational purposes only and does not constitute financial, legal or investment advice.