In a Word on the Block interview, Brian Laverdure, vice-president of the Independent Community Bankers of America (ICBA), told Forkast about how community banks are exploring stablecoins, how they’re viewing digital assets, and what changed in the wake of FTX’s collapse. The Q&A has been edited for brevity.
Angie Lau: What was your immediate reaction to the FTX collapse?
Brian Laverdure: The immediate reaction was this is just the latest in a long string of incidents that highlight the volatility and the fundamental deficiencies within the crypto markets. Compared to the safety and security that a consumer can find with the community banking system, it just highlights the issues.
Lau: When you say issues, specifically, what do you mean by that?
Laverdure: I mean the issues in terms of safety and security. With a community bank, consumers know that they can deposit their assets and that those assets will be protected. But unfortunately, so many consumers who deposit their assets with various crypto providers find that they’re unable to withdraw them.
Lau: How can regulators bring more clarity and clear guardrails to the crypto industry?
Laverdure: We supported the President’s Working Group (PWG) determination that only banks should be able to issue stablecoins. But we have also been long supporters of ongoing communication between the banking regulators, the OCC (Office of the Comptroller of the Currency), the Federal Reserve, and the FDIC (Federal Deposit Insurance Corporation) here domestically with the markets regulators, the SEC (Securities and Exchange Commission) and the CFTC (Commodity Futures Trading Commission). And we recognize that there are roles for each of them to play. Going forward, it’s really important for all of them to maintain a good dialog, to be able to blaze that regulatory path.
Lau: For yourself and other policy observers, what are the missing pieces?
Laverdure: The missing piece is just that clear regulatory framework. That’s something that we’ve asked regulators to provide. There are a handful of community banks that are participating in crypto-asset activities now, but if more are going to do so, you must have clear regulatory guidelines in place before. That’s just the missing element.
Lau: Are financial institutions still interested in crypto, after FTX’s collapse?
Laverdure: It’s a very highly individualized decision. There is no one-size-fits-all approach to crypto assets. Some community banks see crypto assets as solving some needs for their consumer base, but others do not.
Lau: You mentioned that a number of community banks are already participating in crypto. What exactly are they doing and what’s preventing others from participating?
Laverdure: You need to start with the fundamental question of what crypto provides to community banks that they cannot provide through some other means. You often hear about crypto providing a faster payment mechanism, but those already exist in the regulated banking system. Last year the ACH (the National Automated Clearing House) network handled almost US$73 trillion worth of payments, almost a billion in same-day ACH payments, The RTP network is online. FedNow is going to come on next year. Many community banks that are seeking to offer faster payment solutions are prioritizing the implementation of FedNow.
Lau: Speaking to community banks across the U.S., have their views on crypto shifted in the wake of the FTX debacle?
Laverdure: No, I don’t think they’ve shifted. Community bankers had concerns about this space before FTX. And those concerns remain even after FTX. So in that sense, our stance really hasn’t changed. We’ve been at the forefront in terms of trying to raise alarms about the use of crypto assets by bad actors. This year alone, hackers affiliated with North Korea stole more than a billion dollars worth of assets. And that even after OFAC (Office of Foreign Assets Control ) sanctioned Tornado Cash, people continue to use it. These are serious concerns. And that’s why going forward, we’re urging policymakers to put national security and anti-crime measures at the forefront of any cryptocurrency policy.
Lau: Can legacy financial institutions leverage blockchain-based payment networks?
Laverdure: Community banks have to abide by what the regulators say. We have received guidance from the OCC, the FDIC and the Federal Reserve. They’ve all issued bulletins about crypto asset activity. And they all say that banks that are thinking about this have to notify their supervisor. So, it’s not really a question of whether they can technically connect to these systems. It’s really what the regulations allow for. And then does that solution meet any existing or future consumer needs?
Lau: You were among those who supported the notion of banks being the only ones to issue stablecoins. Are community banks in a position to issue stablecoins?
Laverdure: We’re still waiting for that regulatory clarity. The PWG issued that report and that was their primary conclusion, but for the time being, there’s still a real lack of clarity about what exactly is permissible, including any activity related to stablecoin issuance or even holding reserves. So it goes back to the need for a clear regulatory framework.
Lau: In what way would banks use stablecoins?
Laverdure: There have been some thoughts about how stablecoins could evolve in the future, maybe to be payment stablecoins. Some proponents have said that those could revolutionize cross-border payments or transactions like that.
Even domestically, there are concerns among some regulators about the impact payments stablecoins could have if they continue to be offered by non-bank providers. The acting chair of the FDIC spoke about this just a few weeks ago, talking about the potential for payments stablecoins to be highly disruptive to the community banking model in particular. This is a fast-moving space and this is why it’s so important for bankers to be aware of what’s going on, to study these technologies, to consider the risks and benefits, and for clear guidelines about what is permissible.