A South Dakota community banking professional has stepped into the U.S. stablecoin policy fight, arguing that the Clarity Act could weaken local lending if its yield provision is left in place.
In a CoinDesk opinion article, Nate Franzén publicly challenged the Blockchain Association and said Summer Mersinger had downplayed the threat community banks face. His argument was not that stablecoin reserves disappear from the financial system. It was that deposits leaving local banks for stablecoin wallets stop funding the loans those banks make in their own communities.
Mersinger said deposits do not vanish. Franzén said community banks still lose funding.
Mersinger had previously argued in CoinDesk that stablecoins could make payments faster and more global, and that the U.S. should not choke off the technology through excessive regulation. She wrote that if a customer moves $100,000 from a bank deposit into stablecoins, the money does not disappear because issuers must hold reserves, including bank deposits and U.S. Treasuries, so the funds remain inside the financial system.
Franzén acknowledged that point as technically correct, then said it misses the issue that matters to small banks. The U.S. has nearly 4,500 banks, most of them small. Most community banks, he wrote, will never hold even $1 of stablecoin reserves, yet many of them could lose deposits to stablecoin wallets.
He framed it in direct terms: if one of his customers moves $100,000 out of his bank and into stablecoins, and the issuer then buys U.S. Treasuries with that money, his bank loses $100,000 in local lending capacity. The interest from that Treasury does not flow back to his bank or to his community.
South Dakota example: $47 billion in deposits and a possible $3.7 billion drop in lending capacity
Franzén used South Dakota to show the scale of the issue with specific figures.
- Community banks in the state currently hold about $47 billion in local deposits.
- The American Bankers Association, using what Franzén described as a conservative estimate, has said that as much as $4.7 billion could be pulled into stablecoins if Congress does not set reasonable limits.
- Lending capacity could fall by as much as $3.7 billion.
He said those numbers have direct consequences in a state closely tied to agriculture, ranching, and small-business activity, where every reduction in lending capacity can make financing harder to obtain for farmers, ranchers, and local business owners.
The policy split: GENIUS Act bans interest, while Clarity Act leaves room around yield
The dispute turns on the language used in two bills. According to Franzén, the House version of the GENIUS Act explicitly prohibits stablecoin issuers from paying interest. The Senate version of the Clarity Act, by contrast, uses broader wording around yield. If senators do not tighten that language, exchanges or wallet providers could still offer rewards that function much like interest.
Franzén said that creates three problems.
- It puts stablecoins in direct competition with deposits. If consumers can earn a few percentage points on stablecoins while keeping similar dollar exposure and payment utility, the product starts to look like a substitute for a bank account.
- It produces returns without credit intermediation. Stablecoin issuers do not need to turn funds into mortgages, farmland loans, or working-capital loans if they can simply hold U.S. Treasuries.
- It may bypass the regulatory framework banks must follow, including capital requirements, deposit insurance, and stress testing.
In his view, that amounts to an uneven playing field. Community banks would be competing for deposits against a product that can pass through Treasury yields without taking on the traditional credit intermediation role banks perform. The result, he said, is less lending and lower economic activity.
His proposal: keep stablecoins for payments, not as bank-like yield products
Franzén said he is not opposing stablecoin innovation itself. His position is that stablecoins should remain payment tools, not become high-yield deposit substitutes outside the banking system.
He proposed three broad lines: keep stablecoins focused on payments, block exchanges and intermediaries from using interest-like rewards to compete for deposits, and allow transaction-based rewards similar to what credit card companies offer.
He also noted that Mersinger grew up in South Dakota and should understand the role community banks play in the state and across the country. Franzén wrote, 「When a deposit leaves my bank, the issue is not only where that money goes next. The issue is whether I still have the funds to tell the next local farmer, rancher, or small-business owner who walks in the door: yes, we can make that loan.」
Senate review continues, with a final vote expected in September
The Clarity Act is still under Senate review and is expected to face a final vote in September. Franzén urged senators, including South Dakota’s two lawmakers, to strengthen the bill’s limits on stablecoin yield before that vote.
The fight over stablecoin yield has been running since May. At that time, five major banking industry groups refused to compromise and called for a clear ban on stablecoin interest payments. A Senate committee later reached some form of compromise, which Coinbase said at the time had preserved its core interests, but banking-sector concerns over deposit outflows did not disappear.
Franzén’s response, coming from a front-line community banking professional rather than a trade group, shows that the debate is still active. The next question is whether more local banking voices join the pressure campaign before the September vote, and whether the Senate’s final text narrows the remaining gap between rewards and interest.