Stable Coin is Coming. Is Your Bank Ready?

John Engen, Contributing Editor, BankDirector magazine

*This article appeared in the first quarter 2026 issue of Bank Director magazine.

Don Morgan grew up on a ranch in Wyoming and, for a time, was a professional on the rodeo circuit. Based in Bismarck, the CEO of Bank of North Dakota is about 1,600 miles from technology hotbeds New York and San Francisco. It’s hardly the profile of a guy you’d expect to be on the frontlines of a cryptocurrency revolution.

Yet there Morgan was last summer, making state-owned BND the guinea pig for a pilot with core technology provider Fiserv, using a blockchain-enabled payment rail for a bank-to-bank transfer within the state. Things look promising, and he foresees more pilots and myriad use cases in the next few years. But what garners the most attention is that the whole thing runs on a new form of crypto: a stablecoin, dubbed the Roughrider coin, that will be backed 1:1 by cash, short-term Treasurys and other high-quality liquid assets.

Morgan’s championing of stablecoin has raised some eyebrows in the state’s conservative banking community, where BND plays a unique correspondent-like role. Bankers have long been conditioned to view crypto as too speculative and volatile to dabble in. Until recently, lawmakers and regulators echoed the sentiment. Is he putting the state at risk? “When people hear what we’re doing they say, ‘Crypto? Why is the Bank of North Dakota getting into crypto?’” he says.

To Morgan, who was CEO of Starion Financial in Bismarck before arriving at $10.8 billion BND in 2024, the answer is simple: Community banks need faster, cheaper, more seamless payment methods to compete with the likes of Venmo, PayPal and other competitors trying to bleed them of business. A blockchain-based payments solution represents that magic bullet, and it needs a stablecoin (or something like it) to work. Think of it as a means to an end, a key to helping banks stay relevant in a fast-changing market.

“If a community bank doesn’t start working on this now, in 10 years, it’ll have lost a material amount of its deposit market share and interchange revenue,” Morgan says. “We think it’s better for us to get involved now than to sit back and react later.”

Morgan’s evolve-or-die urgency toward stablecoin isn’t shared by everyone. Some observers don’t see enough consumer or business interest in stablecoin to merit the hype. Others worry it could threaten individual bank funding and revenue streams or even lead to the collapse of the entire financial system. Either way, stablecoin appears to be coming. Boards that take the time now to understand the emerging world of crypto payments can position their banks to adapt and compete when the time is right.

The GENIUS Act

Stablecoin blends the speed of a blockchain — a decentralized digital ledger that transparently records transactions via a network of computers — with the safety and certainty of a tangible financial asset standing behind it. While a bitcoin is just a bitcoin, its value fluctuating with the market, a stablecoin is backed by real cash. It can be transmitted anywhere in the world within minutes. From there, the recipient can either keep it or trade it for dollars.

Big names in crypto, including Tether and Circle Internet Group, have long issued their own stablecoins, mostly to help transform bitcoin and other digital investments into dollars. Stablecoins are popular for payments in Latin America, Africa and parts of Asia, where the dollar peg is sometimes viewed as inflation protection. They also are used by criminal groups to move money anonymously.

Large U.S. banks such as JPMorgan Chase & Co. have been using stablecoins internally and in pilots. Most community and regional bankers justifiably have felt it wasn’t something they needed to know much about. That changed in July 2025, when the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act was signed into law.

The law creates a regulatory framework for banks and licensed nonbanks alike to issue a special kind of stablecoin — backed by high-quality liquid assets, such as deposits or U.S. Treasuries — that can be used only for payments.

Under the law, issuers are not allowed to pay interest on stablecoins. That’s a nod to bank fears that digital currencies could erode their deposit bases if allowed to compete on rates. And stablecoins aren’t covered by deposit insurance.

To protect customers, the reserves must be held separately from other assets, with enough to cover every stablecoin issued, and cannot be rehypothecated. Issuers must submit audited monthly reserve reports detailing the underlying assets backing those issuances and annual financial statements, and they will likely face other monitoring requirements. In the case of an issuer bankruptcy, the law says stablecoin holders go to the front of the claims line, (though some attorneys have flagged ways other creditors could potentially jump ahead).

All of this must occur under the umbrella of bank-grade know your customer and Bank Secrecy Act/anti-money laundering programs. That gives banks a potentially huge advantage. Nonbanks that want to issue their own stablecoins will have to build those capabilities or partner with someone, such as a bank, that already has them.

A Flurry of Activity

Getting that governmental imprimatur, with the legitimacy it conveys, has been an aspiration for countless fintech firms and crypto aficionados. Blending the speed and versatility of cryptocurrency with the stability of a bank deposit, they say, will soon render the traditional Automated Clearing House system and Swift network obsolete.

“If you have the ability to let your customer send a payment internationally near instantly and at half the cost, why would you use Swift?” asks Wade Peery, chief innovations officer at $16.2 billion FB Financial Corp. in Nashville, Tennessee.

Rules are being written now, and the stakes are high. The law is supposed to take effect in January 2027, but many players are already surging forward. Recent months have seen a nonstop flurry of conferences, webinars, blog and podcast launches to capitalize on banker desires to understand what is happening and how to respond. One conference presenter says he’s given up preparing PowerPoint decks in advance because things are changing so quickly.

In Washington, the lobbying around stablecoin’s future rules is intense. The payments industry generates about $2 trillion a year in annual revenue, according to the Boston Consulting Group, and a significant piece of it feels up for grabs. In simple terms, nonbanks want to put pedal to the metal while most banks — which arguably have the most to lose — want to apply the brakes.

“There’s an unbelievable amount of money at stake,” says Shawn Main, chief business architect at $4.9 billion Vantage Bank Texas, the subsidiary of VBT Financial Corp. in San Antonio. “The fintech side says, ‘Screw the banks, we’re fine without them.’ And when you talk with bankers, they’re not confident things will go their way. … There is so much jockeying, so much noise, it’s quite extraordinary.”

Away from Washington, stablecoin’s rapid emergence has bank leaders and boards scrambling to unpack a variety of opportunities, challenges and risks. Stablecoins will likely compete directly for deposits, while a cheaper, faster payments alternative could threaten interchange fees and other traditional revenue streams. A new set of risks would presumably need to be addressed.

At the same time, banks could leverage the blockchain’s power to speed their own payments and cut costs. In trade finance, the overall revenues generated by a transaction would likely decline, but the need for fewer intermediaries could mean that banks make more money. Eventually, they could automate lending or capital markets operations or create new revenue-generating businesses in areas like stablecoin custody services. Banks could conceivably make money renting out their BSA/AML expertise to nonbank partners or white label offerings.

“It’s both an opportunity and a threat,” says Michael Reed, a partner with the New York law firm Skadden, Arps, Slate, Meagher & Flom. “Right now, it’s still a show-me game for banks. But if it takes off, they need to have a plan to jump in.”

“The Wild, Wild West”

Anecdotal evidence suggests that many boards, already feeling overwhelmed by new competitors, cybersecurity threats and artificial intelligence, are nowhere near that point. Several directors of regional banks contacted for this story conceded that they didn’t know enough to discuss the topic intelligently.

At $14.7 billion Live Oak Bancshares, a Wilmington, North Carolina-based bank founded by internet banking pioneer James “Chip” Mahan III, the board has discussed stablecoin but wants more clarity about the direction things are headed before it acts. “We’re like, ‘What should we do? Should we form a committee around it?’” says board member Neil Underwood, a general partner at Canapi Ventures, a fintech investment fund.  “We decided we’re going to wait and see which path things take before we do anything.”

For smaller banks, the inertia might be even greater. Entering the crypto universe, with all its jargon and hype, can be challenging even for tech-savvy directors. Many figure their institutions will do fine waiting for the dust to settle.

William Jones, a former executive vice president for U.S. Bancorp and now a director for $3.8 billion Independence Bank of Kentucky, the subsidiary of Independence Bancshares in Owensboro, recently did his own crash course on the subject. He estimates that only 10% of boards of banks under $5 billion in assets have had meaningful discussions about the implications of the GENIUS Act. “I don’t think it’s that frequent of a topic for most boards,” he says.

“It feels like the wild, wild West sometimes,” Jones adds. For many, “it can be intimidating.”

Decisions To Be Made

There is a lot for boards to understand and discuss about stablecoin, and plenty of strategic and tactical decisions to be made. Does a bank want to issue its own stablecoin? Or would it be better to be an infrastructure or custody provider or an on- and off-ramp for stablecoin issued by someone else? Does the bank need to create a wallet for digital currencies? Many banks probably will partner with someone to deliver stablecoin to customers. How do they assess the capabilities and risk controls of those vendors?

One area of debate is whether banks might do better issuing tokenized deposits, a cousin of stablecoin, which could allow them to pay interest and retain deposit insurance. The idea, which is more focused on bank-to-bank transfers, has adherents. It also exposes some early challenges, such as building the interoperability needed to easily exchange digital assets trading on different blockchains. Today, the two largest stablecoins — Circle’s USDC and Tether’s USDT — can’t be exchanged on each other’s networks. Now imagine a world with 300,000 stablecoins and tokenized deposit offerings, many issued by small nonbanks.

Many banks likely will opt not to issue anything but will still want the capabilities to execute stablecoin transactions and perhaps participate in other ways. “Eliminate the idea of being an issuer and focus on infrastructure,” Peery advises. “Stablecoin is not a product, it’s a utility. The important thing is to be able to work with customers who want it.”

Use Cases

For now, the most compelling use cases involve cross-border payments. Imagine a trade finance deal or remittance payment getting done in seconds and at a ridiculously low cost. Sara Krople, a partner with audit and consulting firm Crowe, offers the example of a transfer that today might take four days and cost $55 to settle. “If I send a stablecoin for the exact same amount, it’s going to settle in 12 seconds and cost less than a quarter,” she says. “It’s not hard to see which one consumers are going to pick.”

With time, the move to the blockchain could create new opportunities to capture efficiencies, serve customers better and drive revenue growth. Vantage Bank CEO Jeff Sinnott tells of a large restaurant chain that accepts only cards but wants to pay out tips to employees in cash. Today, the company trucks cash to physical locations, with the associated costs and risks. “Paying that money out in stablecoin would be a game changer for them,” he says.

Sinnott has run three stablecoin pilots and is impressed by another feature of stablecoin: the programmability of smart contracts — essentially code that guides how a digital payment plays out. In a simple example, a manufacturer could program a stablecoin to pay a truck driver the minute his load is delivered or deliver operating capital to a subsidiary at a specific time each morning and retrieve what’s left at the close of business, all with little human input.

Combined with artificial intelligence, banks could use smart contracts to continuously monitor a loan’s collateral value and adjust interest rates algorithmically, based on supply and demand. “With programmability, you can automate everything with code that bakes the rules and conditions into the stablecoin,” Sinnott explains. “There are so many ways it can be used.”

Stablecoin also could prove an important gateway to younger customers, who are more likely to own crypto. John Omahen, head of products and strategic partnerships for Fidelity National Information Services, the technology provider better known as FIS, offers the example of a young homebuyer. “Half of his down payment might be in bitcoin,” he says. “If you want that mortgage, you’re going to need to accommodate that.”

A Solution Looking for a Problem

To some, stablecoin looks like a solution in search of a problem.  “Let’s not forget, you can send a wire same-day right now. You can pull and push an ACH. You can use FedNow or RTP. There are a lot of rails that allow you to do near-instant payments already,” says Sam Sidhu, CEO of $24 billion Customers Bancorp in West Reading, Pennsylvania. Customers has a proprietary payments platform, cubiX, that uses existing rails to deliver payments 24/7 in real time. “The question is, why would your customers want to switch to the blockchain?” Sidhu asks.

It doesn’t appear consumers are eager to make a change. A 2024 Pew Research survey found 63% of Americans had little to no confidence in the reliability of cryptocurrencies. Tiffani Montez, a principal banking analyst for eMarketer, projects that just 3.5% of Americans will be using crypto payments in 2027. “The thing that is oftentimes overlooked is, what do consumers really want?” she says.

Corporations apparently aren’t that moved either. Andrew Deichler, director of the payments practice at the Association for Financial Professionals, says corporate treasurers and CFOs are happy with existing payments systems. Just 13% of AFP members in a 2025 survey said they were familiar or very familiar with stablecoin.  “Right now,” he says, “practitioners aren’t demanding a big change.”

Given those dynamics, why the rush? Thomas Vartanian, general counsel for two federal agencies during the thrift crisis of the 1980s and a cybersecurity expert, says innovative products in financial services are never as well-regulated as more established ones early on. He worries that such “asymmetrical regulation” will eventually trigger a run — even if a stablecoin is pegged to the dollar. “No financial system in the history of the world has been immune from crisis, and something will happen here that banks will get caught up in,” he says.

The GENIUS Act is supposed to make stablecoins safer, but they have shown a tendency to collapse before. Every leading stablecoin tied to the dollar lost its peg sometime between 2019 and 2023, according to recent academic paper by George Washington University Law Professor Arthur Wilmarth Jr. He foresees Big Tech and other nonbanks using stablecoin to “enter the banking business and build financial empires” while creating a dangerous new category of “shadow deposits” — both bad developments for banks. There are also worries that regulated institutions will face greater scrutiny than nonbanks.

Wilmarth argued that lawmakers should scrap the GENIUS Act and allow only FDIC-insured banks to issue stablecoins. “The GENIUS Act would set the stage for future runs on stablecoins triggering systemic financial crises and requiring government bailouts,” he wrote.

An Existential Threat

Beyond all that, skeptics see stablecoin as a looming problem for bank business models. Introducing a new currency and payments delivery system strikes at the heart of banking’s raison d’être, with the potential to threaten deposit franchises, revenue sources and customer bases.

“There’s a big crowd that sees stablecoin as an existential threat to banks,” says Omahen, whose FIS is partnering with Circle to provide client banks stablecoin access. “If firms start moving their money and doing all their business in stablecoin, that’s a customer the bank is never going to see.”

If, as many fear, money moves to stablecoins from deposits, banks will have fewer dollars to lend to their communities. An analysis by the Federal Reserve Bank of Kansas City concluded that every additional dollar of stablecoin issuance would decrease bank lending by 50 cents. The numbers could explode, depending on how the rules come out. An April 2025 Department of Treasury report warned that banks could lose as much as $6.6 trillion in deposits if stablecoins are allowed to pay yields. That’s nearly 37% of total industry deposits at the end of 2024.

The GENIUS Act bans paying interest, but already some players, such as Coinbase and Kraken, reportedly have been doling out “rewards” that have the same effect. Bank lobbying groups have been working to close the loophole. “Bankers are worried that a yield-bearing stablecoin could disintermediate deposits and erode their balance sheets,” says Susan Sullivan, senior vice president for congressional relations at the Independent Community Bankers of America.

Existing nonlending businesses also could be vulnerable. Already there are whispers that big retailers like Walmart and Amazon.com could issue stablecoins of their own to dodge interchange fees. “There is no question in my mind that this network is in direct competition with the card network,” Underwood says. “Businesses will start saying they’re tired of paying 300 basis points to price risk that doesn’t really exist.”

A Beginning Playbook for Boards

There are so many moving parts, so many directions things could head, no one can say for sure what comes next. Even so, things are moving so quickly that boards will need to start making key initial decisions about if and how a bank will approach stablecoin relatively soon.

For now, everyone agrees that bank boards should begin educating themselves on the nuances of the GENIUS Act and quizzing management on what customers want and how stablecoin could influence their banks’ strategies, business models and risk management practices.

“Every board should be in discovery mode, asking a lot of questions and educating themselves,” says Chris Nichols, director of capital markets for $66 billion SouthState Corp. in Winter Haven, Florida. “This isn’t something where you can continue to sit back and see how the market develops. It could represent a major risk, and you need to start planning how you will address it.”

Stablecoin could become an important part of the business, so get conversant in concepts like stablecoin programmability and interoperability, and work to understand the nuances of a digital currency. Assess the risks, which can be difficult to ascertain but vitally important. What are your partners’ risk management practices? What funding alternatives exist if the bank loses deposits? What happens to the bank if there is a stablecoin run?

“Your obligation under the business judgment rule is to ask the best questions you can and get the best answers,” Vartanian says. “If something goes wrong, people are going to look at the record and ask how well the board understood the technology and its implications.”

Morgan suggests taking things one use case at a time, learning as you go. “We have always considered crypto as not-ready-for-banking and said we have no business getting into it, but that has changed,” he says. Stablecoin is coming. It’s time for banks to prepare.