Book A Meeting

Stablecoins and Crypto: Community Banks’ Struggles with Third-Party Providers

Print Friendly, PDF & Email
CCG Catalyst Commentary

Stablecoins and Crypto: Community Banks’ Struggles with Third-Party Providers

By: Paul Schaus

February 4, 2026

The rise of stablecoins and crypto-assets presents both opportunities and risks for community banks, but core service providers (CSPs) and third-party providers often lag in support. With digital currencies offering efficient payments and tokenized assets, community banks are interested but hindered by outdated systems and cautious vendors. Based on my review OCC’s recent RFI, I explore major challenges affecting community banks with Stablecoins and Crypto, possible OCC actions, and how regulation could complicate the situation.

Stablecoins, pegged to stable assets like the U.S. dollar, promise stability in volatile crypto markets, while broader crypto-assets enable new revenue streams through custody, lending, and yield-bearing products. However, without adequate provider support, community banks risk being sidelined, facing deposit disintermediation from nonbank competitors like fintechs. As the RFI notes, continued consolidation reduces competitive pressure, leaving banks with burdensome contracts and limited access to cutting-edge tools. CCG Catalyst’s analysis aims to provide actionable insights for banks navigating this frontier.

Core Challenges in Responding to Crypto Markets

Community banks anticipate significant gaps in provider capabilities amid regulatory uncertainty and legacy technology, potentially hindering their entry into lucrative digital markets:

  • Limited Offerings: Core providers often offer minimal or no support for stablecoin custody, on-chain settlements, or crypto-asset reporting, forcing banks to rely on fragmented third-party solutions. This lack of integrated tools means banks must patchwork systems, increasing complexity and delaying adoption of features like real-time blockchain transactions or tokenized deposits.
  • Risk Aversion: Providers exhibit inconsistent stances on Bank Secrecy Act/Anti-Money Laundering (BSA/AML) risks, frequently withdrawing support due to perceived vulnerabilities. Community banks expect ongoing shortages in essential compliance tools, such as on-chain analytics and transaction monitoring, which are crucial for mitigating illicit activity in crypto ecosystems.
  • High Costs: Market concentration among a few dominant providers reduces incentives for crypto innovations, leading to exorbitant fees for custom adaptations or partnerships. Banks face elevated due diligence costs, compounded by inflexible contracts that limit switching options and strain limited budgets.
  • Regulatory Hurdles: Evolving OCC guidance creates uncertainty in aligning provider solutions with third-party risk management expectations. Outsourcing crypto services, like custody or execution, becomes complicated under safety and soundness standards, with banks anticipating difficulties in meeting examiner scrutiny.
  • Competitive Threats: Without enablement from providers, banks risk losing deposits to stablecoin-based payments offered by nonbanks, eroding lending opportunities and market share. As stablecoin adoption grows, this disintermediation could accelerate, leaving community banks at a disadvantage against agile digital natives.

These issues could sideline community banks from emerging opportunities in digital payments and blockchain, exacerbating their competitive lag against larger institutions and fintechs. The OCC RFI highlights how legacy systems hinder seamless integrations, while provider dependency amplifies risks in volatile crypto markets.

Challenge

Impact on Banks

Expected Future Issues

Limited Integration

Fragmented solutions increase operational risks

Gaps widen with stablecoin growth

Compliance Tools

Delays in market entry

Heightened BSA/AML vulnerabilities

Costs & Dependency

Strained budgets

Reduced innovation incentives

Regulatory Uncertainty

Outsourcing challenges

Safety & soundness scrutiny

Competitive Threats

Deposit disintermediation

Lost lending opportunities

How the OCC Can Address These Concerns

Leveraging its regulatory and supervisory authority, the OCC could foster a more supportive environment for community banks engaging in crypto markets:

  • Issue clear, risk-based guidance on permissible crypto activities, including expectations for third-party integrations in stablecoin custody and payments. Building on recent interpretive letters affirming banks’ roles in holding crypto-assets for network fees or riskless principal transactions, this could clarify pathways for safe participation.
  • Update third-party risk management (TPRM) frameworks to include incentives for providers to adopt open architectures and share best practices on crypto compliance. This might involve emphasizing interoperability in guidance, reducing barriers to fintech partnerships.
  • Facilitate industry dialogues and consortia for shared due diligence on crypto providers, lowering costs for individual banks and providing supervisory clarity on outsourcing. Initiatives such as Project REACh could expand to include crypto-specific workstreams, promoting collaborative risk assessments.
  • Promote transparency through range-of-practice documents on leading crypto adaptations, helping banks negotiate better terms with providers. By highlighting successful models, the OCC could encourage providers to prioritize community bank needs without mandating changes.

These steps, rooted in the RFI’s call for input, could empower banks to innovate responsibly, aligning with the OCC’s goal of tailoring supervision to community banks’ unique risks.

Potential Complications from OCC Actions

While proactive, OCC interventions could inadvertently heighten barriers if not carefully calibrated:

  • Overly restrictive or ambiguous guidance may prompt providers to prohibit crypto solutions altogether, limiting access for community banks and amplifying vendor lock-in in an already concentrated market.
  • Heightened supervisory scrutiny without proportional safe harbors could inflate compliance costs, deterring smaller providers from innovating for community banks and reinforcing dominance by larger players.
  • Uneven application of rules might favor bigger institutions with more resources, leading to “supervisory creep” that disproportionately burdens community banks with oversight in crypto engagements, potentially stifling pilots and partnerships.

The OCC’s RFI acknowledges these risks, noting how regulatory burdens might exacerbate anti-competitive forces, underscoring the need for balanced, proportionate approaches.

Stablecoins and crypto represent a transformative frontier for community banks, offering avenues for growth in digital payments and asset tokenization, but provider shortcomings and regulatory challenges must be navigated carefully. By addressing gaps in offerings, costs, and compliance through targeted guidance and collaborations, the OCC could unlock significant potential while mitigating risks. However, balanced interventions are essential to avoid unintended complications that could further disadvantage smaller institutions. As the financial sector evolves, community banks must advocate for open architectures and transparent practices to stay competitive. CCG Catalyst is here to guide you through these complexities, contact our team for personalized strategies. Stay tuned for the next in our series: AI developments and community bank adaptations.

BANK
FINTECH
FUSION
Linkedin

Subscribe to our Insights