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Hello! Kiah here. Welcome to Fintech Takes Banking, my weekly newsletter where I highlight things I think are interesting or important for bankers and the surrounding environs.  

Thank you to everyone who voted in my LinkedIn/Fintech Takes Network movie poll. I rewatched “Margin Call” this weekend and am excited to share my thoughts with you in a forthcoming project launch!

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A common feature of newspapers is briefs: short stories that address something of interest. Maybe it’s the summary of a meeting, some community event, a crime blotter.  Briefs can also be a great place for items that are of passing interest but not traditional “news.” They could flesh out a bigger story, but on their own, they’re short snippets of information. 

In the great tradition of newspaper briefs, here are some banking briefs of recent news items you might’ve missed, along with some commentary.

What does a massive influx of stablecoins do to the banks that receive them?

A stablecoin is a type of cryptocurrency issued by an issuer that has a steady value that is tied to a reserve asset, such as the U.S. dollar. They are used for transactions and payments, and ideally should be able to be converted or redeemed at their par values.

The March 2023 closure of Silicon Valley Bank caused some stablecoin firms to search for new partner banks to place their funds. This scramble caused a deposit shock to the concentration of “a few banks” that ended up taking the balances and processing the issuers’ transactions, according to researchers at the Federal Reserve Bank of New York.  The processing banks, which the researchers call the “partner banks,” generally had less than $250 billion in assets as of the end of 2021. 

“[F]ollowing partnerships, all measures of bank liquidity are impacted by stablecoin primary market activity, including daily payment activity and intraday reserve volatility,” they wrote in a February staff report called “Stablecoin Disintermediation.

To “meet significant intraday liquidity obligations” of issuers converting dollars and stablecoins, the banks became narrower. They didn’t use the stablecoin funds as regular deposits to deploy into longer-term assets. Instead, partner banks maintained “substantially larger bank reserve balances,” about $1.5 billion more, to avoid liquidity shortfalls during expected service payment outflows and the potential for runs during stress. The percentage of loans to assets fell 14 percentage points in the quarter after the liquidity shock — an 11.4% decrease — relative to the control group of institutions that weren’t holding reserves, even as the partner bank’s asset growth outpaced peers. 

“Our analysis suggests that even partner banks, who are beneficiaries of stablecoin markets within the banking system, materially adjust their operation, including lending activity,” they wrote. “Stablecoin deposits appear to permanently affect banks’ balance sheet composition.”

The researchers cautioned not to extrapolate this finding to the broader market just yet; they wrote that the size of the stablecoin market during their sample period was not sufficiently large enough to estimate the impact on aggregate lending. 

It remains to be seen if stablecoin companies will continue keeping funds at commercial banks. Federal Deposit Insurance Corp. Chairman Travis Hill recently shared that the agency is “planning to propose that payment stablecoins subject to the GENIUS Act are not eligible for pass-through insurance” in a speech. Pass-through insurance grants insurance to funds that are placed at a bank by a third party on behalf of a depositor, as if the depositor placed the funds themselves. He said the GENIUS Act made it clear that payment stablecoins would not be subject to deposit insurance and prohibits issuers from representing that they are or are otherwise guaranteed by the U.S. government.

“In my view, we should answer this question definitively by regulation, rather than waiting until a bank that holds stablecoin reserves fails, when different parties may have different expectations on the availability of FDIC insurance,” he said. 

Would love to hear his thoughts on this paper, then! Also, I hope the FDIC knows the identities of these institutions, given that they weren’t named in the paper. Hill also posits something interesting in the speech: Are stablecoin balances at banks eligible for pass-through deposit issuance today? Without a bank failing, it’s hard to test this theory (we were so close with Silicon Valley Bank!!!).

“It is difficult to estimate the extent to which stablecoin arrangements would qualify for pass-through insurance if they were eligible,” he said. “Current pass-through insurance rules require that the identities and interests of end-customers must be ascertainable in the regular course, which is not a common feature of large stablecoin arrangements today.”

The research also has implications for stablecoin issuers and crypto companies seeking national trust charters. Let’s assume that institutions that the researchers identified as holding these stablecoin funds are traditional insured commercial banks. If stablecoin flight resulted in these banks becoming narrower, and to the extent anyone thinks that’s a risk, wouldn’t it be better if these deposits were custodied … somewhere else? Perhaps with a trust bank that doesn’t do any lending, only takes uninsured deposits and is prohibited from comingling funds? 

Cyber risk is a growing threat to financial stability. 

There have been material cyberattacks on “virtually every layer of the financial system architecture” in the past five years, including in the Treasury market, derivatives markets, global payments and settlement, and technical infrastructure, according to researchers at the Federal Reserve Bank of New York.

Researchers at the Federal Reserve Bank of New York have proposed a framework in a working paper called “Systemic Cyber Risk” that quantifies and tracks cyber vulnerabilities that could pose systemic risk to the U.S. financial system. They used this framework to create an index that tracks system-level cyber vulnerabilities (SCV) for the financial services space, using financial, economic, cyber and network data from financial institutions and tech firms. They found, perhaps unsurprisingly, that a small subset of large tech firms, like Microsoft Corp., Alphabet’s Google, Cisco Systems and Apple, were “key contributors to SCV.” These firms also made up the “largest cumulative count of vulnerabilities,” given the shared dependencies of financial institutions on these firms. 

This framework and the addition of tech firms as a source of weakness remind me of the systemic risk lurking within software. Sure, software can be hacked, and that’s a risk that needs to be managed. But software itself is posing problems — both in overreliance and outdated tech.

Cybersecurity firm CrowdStrike’s software outage, which stemmed from a flawed update, led to Delta Airlines cancelling 7,000 flights in five days in 2024. The company estimated the incident would be a $380 million direct hit to revenue in a filing with the U.S. Securities and Exchange Commission. Competitor airlines were impacted to varying degrees but nowhere to the extent that Delta was. Technical debt and limitations contributed to scheduling and operational issues at Southwest Airlines Co. in the wake of severe winter weather in December 2022. The company cancelled almost 17,000 flights, even as competitors recovered from the weather disruption, and was fined $140 million by the U.S. Department of Transportation. 

These outages were massive, but obviously no one called the Financial Stability Oversight Council for a systemic risk exception. I don’t think that’s any reason for complacency against something similar happening within financial institutions, or their major shared vendors. What are the odds a CrowdStrike-style outage could happen to a large-enough tech company, an important-enough vendor? What systems are vulnerable because they are outdated? What institutions are vulnerable because of their overreliance on a vendor?

Last January, banking regulators closed Chicago-based Pulaski Savings Bank, which had a little less than $50 million in assets at the end of September 2024. The Federal Deposit Insurance Corp. entered into a purchase and assumption agreement with Des Plaines, Illinois-based Millennium Bank of Des Plaines to acquire all $42.7 million of the deposits and $45 million of the assets. 

Pulaski was a small bank. So it was surprising to see the FDIC’s preliminary estimate that the failure would cost the Deposit Insurance Fund about $28.5 million — 62% of the bank’s assets. 

While a sizable loss by percentage, the actual amount falls below the threshold of $50 million loss that requires a material loss review. But the FDIC’s Office of the Inspector General has the right to consider whether “unusual circumstances warrant further review” of failures, including “the magnitude and significance of the loss,” whether agency “supervision identified and effectively addressed” issues that contributed to failure and “indicators of fraudulent activity that may have significantly contributed to the loss to the DIF.” The OIG elected in June 2025 to undertake a material loss review, which it published in March. 

The MLR contains what I would characterize as “normal MLR stuff.” The FDIC recognized weaknesses in the bank’s management in a 2017 memorandum of understanding, which it updated in 2020 and 2023. Examiners didn’t designate the CEO as a dominant official but did assign a key person risk to them. The OIG had no recommendations for the FDIC. Fine! 

But the MLR failed to address the suspected fraud and didn’t shed any light on the events that led up to the bank’s failure. You see, Pulaski had at least $20.7 million in certificates of deposits that were not accounted for in its core financial system. These deposits didn’t have corresponding assets, which meant that subsequently recording them caused the bank to exceed its equity capital. Pulaski Savings became critically undercapitalized, and then it failed. WHAT. The whole situation reminds me of Uncle Billy in “It’s a Wonderful Life.”

But it turns out it’s slightly worse and weirder. The FDIC doesn’t say when these deposits came into the bank, but the OIG’s June 2025 report noted that a December 2024 examination “confirmed the observations of a contractor engaged by the bank to update its general ledger” about these deposits. This contractor found the discrepancy — not clear when — and then told the examination agencies. The regulators verified the report of “significant unresolved and unexplained discrepancies” within the suspense account and the large deposits maintained off the bank’s core system, which started the bank’s almost inevitable path toward failure. This is a crazy disclosure on an already weird situation, and neither is explained in the OIG report. But hats off to that contractor!

One inescapable observation when discussing how technology is or isn’t changing banks is that executives sometimes experience dissatisfaction or are underwhelmed by some technology once it’s in place. There are a lot of reasons why this happens, which gives me lots of story ideas. 

SouthState Bank’s recent bank innovation playbook caught my eye for this reason. In it, Institutional Banking President Chris Nichols argues that technology is a “force multiplier” for the bank’s processes and people; it “strengthens what already works and exposes what doesn’t,” including “unclear strategy, broken processes, cultural gaps or progress stalls.”

The piece postulated that bankers need to first define the right problem and establish a foundation before messing around with tech tools. The playbook stipulated that innovation starts with people, following a clear philosophy to improve process at a deliberate pace to make practical choices. In addition to the playbook, SouthState also built a free online assessment tool for banks.

Like many things, the framework is straightforward and not particularly revelatory, but it’s not easy. If it were easy, no bank would have trouble with innovating, deploying new technology and keeping up with the pace of change and customer expectations. The playbook’s framework is important; it’s also nothing we didn’t already know. Knowing what to do is easy. Doing it day after day is the hard part.

FROM THE VAULT

What I’ve been reading, watching and listening to this week:

👟️ Two recent emotional wins in distance running: Jacob Kiplimo setting a half-marathon world record of 57:20 — a 4:22 mile for 13 miles — in Lisbon gave me chills. But my heart is celebrating with Nathan Martin, a 36-year-old cross-country coach from Michigan, who won the 2026 Los Angeles marathon in 2:11:50. He came from second place with an incredible sprint right at the end to win (potentially aided by two strange things that happened with the lead runner close to the finish). I’m adding Nathan’s post-race quote of “You can’t always win, but you can always push” to my mantra phrasebook.

📚 Book recommendation: I recently finished Richard Osman’s “Thursday Murder Club” mystery series, about a group of pensioners who solve — you guessed it — murders. I loved the cozy mysteries, the humor and the writing, but I especially treasured the characters and how they show up for each other. 

🎙️ On Bank Nerd Corner: I chat with Madeline Fredin, vice president of partnership strategy and resident AI whisperer at Alloy Labs Alliance. We talk about IBM’s Deep Blue and the unique moment AI has created for banks of all sizes, if they can figure out how to capitalize on it (It’s a big if). 

🛫 Catch Me At: CBA Live 2026, March 30-April 1, in San Diego. This will incidentally be over my birthday, so everyone has to be nice to me the entire conference.

Thanks once again to my colleague Claire Monterroyo for the Uncle Billy meme, and thanks for reading! Let me know your thoughts on this piece. 

– Kiah

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