Three years ago, 75% of U.S. banks were actively discussing digital assets at the board and executive level. Today, that number has plummeted to just 6%. What happened?
Burned by early failures, paralyzed by regulatory ambiguity, and waiting for more data, most institutions backed away from the digital asset conversation. But with the recent passage of stablecoin legislation and a more favorable tone from regulators, the crypto tide is turning. For small and midsized banks, the timing may be ideal to re-engage.
Small Banks, Big Advantage
For too long, crypto has been perceived as a game only the largest financial institutions can afford to play. But the very things that make crypto feel risky to large banks (think: complex oversight structures, capital reserve modeling and elongated product timelines) give smaller banks a natural edge.
Community and midsized banks are:
Agile
With fewer layers of governance and faster decision-making structures, smaller banks can assess and roll out new products, services and policies more efficiently than their larger counterparts.
Customer-connected
Leaders at smaller banks often have direct, personal relationships with their clients. They understand how money moves, which services customers use, and what their financial goals are, including interest in crypto. Larger institutions typically depend on formal controls such as KYC, EDD, OFAC, and fraud detection systems to monitor crypto activity across a broader and less familiar customer base.
Closer to crypto’s roots
Let’s not forget, crypto was designed to serve the underbanked, reduce reliance on centralized systems, and democratize finance. That mission aligns closely with the community banking ethos.
A More Favorable Regulatory Environment
Until recently, one of the biggest barriers to entry was regulatory ambiguity. In 2022, the FDIC and OCC required a formal “non-objection” letter before a bank could even engage in crypto-related activity. Most small banks didn’t have the resources to prepare those requests, especially when approval wasn’t likely.
But in early 2025, that requirement was rescinded, opening the door for more nimble institutions to explore digital assets within their risk appetite (and a well-governed framework).
Meanwhile, the GENIUS Act, which lays the foundation for stablecoin regulation, was offically signed into law on July 18, 2025.
For smaller institutions, this legislation adds the clarity and confidence needed to consider crypto products more seriously—especially where stablecoin adoption is concerned. For more information on the GENIUS Act and its impact on AML compliance read Jon Glass’ Insight outlining what you need to know:
Crypto as a Payments Opportunity
Rather than treating crypto as a standalone venture, many smaller banks are beginning to see it as a natural extension of their payments strategy.
Think of stablecoins as a new rail, not a revolution. They allow for instant settlement, fiat compatibility, and fewer intermediaries—qualities that align with the efficiency goals of community institutions.
With the right vendor relationships, smaller banks can offer:
Fiat-to-crypto conversion services
Crypto-powered payment options
Real-time transaction capabilities using stablecoin rails
And they can do so without building everything in-house, just as they’ve long relied on partnerships for mobile banking, remote deposit capture, and fraud monitoring.
Governance and Risk Without the Red Tape
Large banks often face weeks or months of internal committee meetings just to assess a new product. Smaller banks can move with more clarity and speed—but that doesn’t mean cutting corners.
To safely enter the crypto space, small to midsized institutions need to:
Establish a clear risk policy and governance model for digital assets
Ensure strong BSA/AML protocols for transaction monitoring and customer due diligence
Conduct proper vendor due diligence, especially around third-party risk and compliance support
Treat crypto as part of a broader payments and digital services roadmap, not a one-off experiment
The goal isn’t to race; it’s to move deliberately with the advantage of flexibility and proximity to your customer base.
The Time to Explore is Now
Crypto adoption isn’t about speculation anymore—it’s about readiness, risk and relevance. Small and midsized banks that once thought they were “too small” for digital assets may now be better equipped than the largest players.
You know your customers. You can move faster. You don’t have to untangle a legacy web of risk and compliance policies to get started.
Will you take the first step?
With clearer legislation, more responsive regulators, and stablecoin regulations, this may be the moment for community banks to lead, not follow, in the next phase of financial innovation.
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