As the Clarity Act nears a Senate vote, legislative efforts to expand the cryptocurrency industry and promote stablecoin adoption for business payments are taking shape. However, as highlighted in this month’s newsletter, the use case for stablecoins in payments remains limited. Last year, stablecoin transaction volumes exceeded $6 trillion, driven primarily by trading activity (Slide 1), but adjusted for high-frequency and high-volume trading wallets, high-frequency and high-volume smart contract addresses, and bot-related activity. According to Visa, the supply of stablecoin tokens increased significantly in the first half of the decade, averaging 278 billion last year (Slide 2). While e-commerce sales topped $1 trillion last year (Slide 3), retail transactions using stablecoins accounted for only $71 billion of that total (Slide 4). Overall, instant payment activity has been growing rapidly in the first half of the decade, but recent FedNow platform data indicate it has stabilized in recent quarters (Slide 5).

As noted in the newsletter, Community Bank and Trust-West Georgia, a $288 million bank mainly focused on farm loans, became the second bank to fail this year (Slide 6) due to credit issues in its portfolio. Its failure will cost the FDIC’s Deposit Insurance Fund $100 million, the largest proportional loss since IndyMac. Although agricultural lending represents a small part of the overall banking industry loans, it has increased by 50% over the past five years, reaching $123 billion last quarter (Slide 7). Loan growth has exceeded deposit growth since late 2021, but the growth rate has slowed in the past year. Nevertheless, the three-year loan growth rate still surpassed deposit growth by 8% in the most recent quarter (Slide 8).

Banks continued to boost their concentration in interest-rate-protected short Agency CMOs last quarter, reaching 8% of their total investment portfolios—their highest level since 2012 (Slide 9). Meanwhile, after dropping below 3% in 2022, the industry’s average net interest margin (Slide 10) rose to 3.6%, the highest since 2010.