by the VACB and other state associations — is leading a critical campaign regarding the Clarity Act currently moving through the Senate. In July 2026, the ICBA, alongside the ABA and 76 state banking associations, sent an urgent joint letter to Senate leaders emphasizing the need to tighten Section 404 of the bill. As currently written, the bill contains ambiguities that could allow non-bank crypto issuers to offer interest-like “rewards” or “yields” on stablecoins. The stakes could not be higher. THE COST OF COMPOUNDING INTEREST ON STABLECOINS According to macroeconomic modeling conducted by the ICBA, if crypto exchanges and non-bank issuers are permitted to pay yield or interest on payment stablecoins, it could trigger a catastrophic $1.3 trillion drain on community bank deposits. That loss in deposit capital would directly translate to an estimated $850 billion decline in community bank lending capacity, devastating small businesses, agriculture and local housing markets nationwide. The ICBA and VACB are demanding that Congress close these loopholes to ensure that payment stablecoins function strictly as transaction tools — not as tax-advantaged, yield-bearing substitutes for insured bank deposits. TOKENIZED DEPOSITS: OUR BEST OFFENSE IS A GOOD DEFENSE While we fight to keep stablecoins strictly transaction-focused, our best defense is a proactive offense: tokenized deposits. A tokenized deposit is not a new asset class; it is simply commercial bank money with a digital upgrade. It is a digital representation of a standard deposit liability held directly at a federally insured institution. Here is why tokenized deposits are the superior path forward for community banks: • They Stay on the Balance Sheet: Because tokenized deposits are native to our institutions, the underlying funds remain on our balance sheets. This preserves the relationship-based commercial fractional reserve model that keeps community credit flowing. • FDIC Insured and Regulated: Tokenized deposits remain subject to existing banking laws, rigorous safety and soundness examinations, and — crucially — eligibility for FDIC insurance. • Programmability and Speed: By utilizing blockchain or DLT, tokenized deposits allow us to offer the 24/7, near-instant settlement and smart-contract programmability that modern commercial treasury clients are starting to demand. We can automate complex escrow services, supply chain payments and collateral management without giving up the client relationship. NAVIGATING THE REGULATORY HORIZON TOGETHER While the business case for tokenized deposits is compelling, we are not quite at the finish line. Unlike stablecoins under the GENIUS Act, there is still a lack of unified federal regulatory guidance specifically tailored to tokenized deposits. The Conference of State Bank Supervisors (CSBS) recently issued a critical call to action, urging state and federal regulators to prioritize joint, consistent guidance on tokenized deposits — covering everything from ledgering and accounting to real-time BSA/AML compliance. At the VACB, we are actively engaged on this front. Through our advocacy efforts alongside the ICBA, we are working to ensure that any future regulatory frameworks do not inadvertently favor large money-center banks or non-bank tech giants at the expense of local, community-focused institutions. We want to ensure that community banks have equal, affordable access to the next generation of payment rails. LOOKING FORWARD As community bankers, our strength has always been our ability to pair traditional, trust-based relationships with modern, competitive services. We do not need to be bleeding-edge tech innovators overnight, but we cannot afford to sit on the sidelines while the very nature of money is being rewritten. I encourage you to read, ask questions of our preferred vendors, and join us in these critical discussions. Let’s continue this conversation at our annual convention in October, where we will dive deeper into how Virginia’s community banks can stay resilient, liquid and local in a digital age. Thank you for your continued dedication to your communities, to the VACB, and to the vital advocacy work we do together. Sincerely, Lisa E. Kilgour Chair, Virginia Association of Community Banks (VACB) EVP & Chief Operating Officer, MainStreet Bank 5 The Community Banker
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