Empowering Community Banks

In the aftermath of the 2008 financial crisis, the United States experimented with innovative tools to channel capital toward small businesses, the backbone of American economic vitality. One such initiative, the Small Business Lending Fund (SBLF) established under the Small Business Jobs Act of 2010, provided low-cost capital directly to community banks – those with assets under $10 billion – to incentivize lending to small enterprises. The program disbursed approximately $4 billion to over 300 institutions, resulting in a cumulative net increase of more than $19.1 billion in qualified small business lending over baselines (U.S. Department of the Treasury, 2025).

Yet the SBLF was a product of its time: reliant on traditional financial rails, it operated amid sluggish post-crisis recovery and bureaucratic constraints. Today, as the U.S. economy contends with persistent challenges in credit access for underserved entrepreneurs – exacerbated by concentrated banking and rising funding costs – a revived SBLF could prove transformative. The key lies in a hybrid approach: retaining the program’s direct capital injections to community banks while integrating modern digital monetary infrastructure, particularly the regulated stablecoins enabled by the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act of 2025.

This hybrid model would dispel longstanding fears that stablecoins threaten to disintermediate community banks, while accelerating economic growth through unprecedented efficiency in capital deployment.

The GENIUS Act marks a watershed in U.S. digital finance policy. By establishing a federal framework for payment stablecoins – requiring 1:1 backing with high-quality assets such as Treasury bills or insured deposits, prohibiting direct yield payments to holders, and subjecting issuers to rigorous oversight – the legislation has legitimized these instruments as reliable tools for payments and settlement (Latham & Watkins, 2025). Stablecoin market capitalization has surged to over $300 billion by late 2025, yet empirical analyses from 2019 to 2025 reveal no significant deposit erosion at community banks (Tsyrennikov, 2025). Comprehensive econometric studies, controlling for macroeconomic shocks including the 2023 Silicon Valley Bank failure, find negligible correlations between stablecoin growth (e.g., USD Coin) and outflows from smaller institutions, with impacts remaining below 1 percent under realistic adoption patterns (Tsyrennikov, 2025; American Banker, 2025).

These findings underscore a critical reality: stablecoin users today overlap minimally with the relationship-driven retail and small business customers of community banks. Rather than siphoning core deposits, regulated stablecoins present an opportunity for these institutions to modernize. Some community banks and credit unions are already exploring issuance through subsidiaries or partnerships, leveraging blockchain for faster settlements while retaining reserves in insured deposits or Treasuries. A revived SBLF could accelerate this integration by distributing funds partially or wholly in compliant stablecoins, enabling instant, low-cost transfers and programmable incentives – such as reduced dividend rates tied to verifiable lending increases on-chain.

Using modern rails would address the inefficiencies that plagued earlier programs. Traditional tranches and wires entail delays and administrative burdens however, blockchain-enabled distribution could reduce costs dramatically, ensuring capital reaches local lenders swiftly. Community banks, long the stewards of relationship lending in rural and underserved areas, would gain tools to compete with larger institutions and fintechs, offering clients seamless digital payments without forfeiting deposit bases. Far from outflanking Community Banks, stablecoins – under the GENIUS Act’s safeguards – could fortify community banks’ role in credit provision, amplifying the multiplier effects seen in the original SBLF.

The economic imperative is clear. Small businesses continue to face credit constraints, with demand outstripping supply in many regions. By injecting capital directly into community banks via efficient digital channels, a hybrid SBLF could catalyze lending at scale, fostering job creation and innovation akin to historical precedents. Alexander Hamilton’s vision of directed credit for productive enterprise finds resonance here that provides public capital, leveraged privately, to build national prosperity.

This proposal, however, need not stand alone. A broader takeaway emerges from the logic of directed, efficient public investment. Staring us in the face is the potential for a national infrastructure bank. Modeled on historical institutions – from Hamilton’s First Bank of the United States to Franklin Roosevelt’s Reconstruction Finance Corporation – such an entity could finance transformative projects in transportation, energy, and broadband, drawing on Treasury securities for capitalization without straining the federal budget. Funded in part through modern rails like regulated stablecoins, it would complement small business support, creating a cohesive framework for sustained growth. U.S. Congress and Delaware should seize this moment to institutionalize such mechanisms, ensuring American competitiveness in an era of rapid technological and economic change.

JAS