Small Banks Face Uncertain Future as CBDCs Enter Mainstream

• The Independent Community Bankers of America (ICBA) are calling for more oversight in the cryptocurrency industry.
• Small banks have deep political influence, and Paul Merski, the ICBA congressional relations leader, believes that crypto should not be part of the traditional banking system.
• With central bank digital currencies (CBDCs), small banks could potentially be sidelined or put out of business due to a direct line between central banks and citizens‘ wallets.

The ICBA’s Call For Crypto Regulation

The Independent Community Bankers of America (ICBA) are calling for lawmakers and regulators to take a more adequate oversight of crypto, as CBDCs enter mainstream. Rebeca Romero Rainey, President of ICBA, sent a letter to Congress urging for increased regulation on non-bank stablecoin issuers‘ efforts to gain access to the Federal Reserve master account.

Small Banks‘ Political Influence

Small community banks are seen as „darlings“ by Washington policymakers on both sides of the aisle and have a „deep well of Washington clout.“ Paul Merski, leader of the ICBA congressional relations, believes that crypto should not be part of the traditional banking system because it poses a threat to current financial stability. The lenders represented by ICBA constitute 99% of all banks across America and Merski admits they do not draft legislation but their opinions are often sought after first.

Understanding Crypto Technology

Merski is likely unaware or has little understanding about new technologies such as stablecoins and DeFi protocols which are probably completely beyond his understanding. As bankers, they may also be trying to protect themselves from what they perceive as an imminent threat posed by cryptocurrencies rather than what benefits it can bring to them in terms of innovation and growth potentials.

Impact Of Central Bank Digital Currencies

It is unclear how much knowledge small banks have when it comes to central bank digital currencies (CBDCs). Wholesale CBDCs will likely favor larger commercial banks while retail CBDCs could create a direct channel between the central bank and each citizen’s wallet without needing any banking third party at all. Either way, small banks might find themselves being sidelined if they fail to embrace this new technology.


In conclusion it appears that small community banks may have limited options regarding their future given the potential power that central bank digital currencies possess over them unless they embrace crypto services like custody services in order to remain relevant in this increasingly digitized world economy.