A recent White House report challenges the banking industry's claims that stablecoin yields would lead to a decline in deposits and lending to households and small businesses. Instead, the analysis found that banning these rewards would have a negligible impact on credit creation. The report, which examines the GENIUS Act and proposed updates to the Digital Asset Market Clarity Act, warns that restricting 'yield-like' rewards from intermediaries could be counterproductive. The findings are based on a stylized economic model using Federal Reserve and FDIC data, as well as industry disclosures and academic estimates.
The report emphasizes that a yield prohibition would do little to protect bank lending, while depriving consumers of competitive returns on stablecoin holdings. The study marks the latest development in the ongoing conflict between US banks and the cryptocurrency industry, which has stalled digital asset legislation in Congress.
The crypto industry argues that yield-like rewards on stablecoins should be allowed, while banks warn that this would lead to funds being diverted from the traditional financial system. However, the report claims that even a full ban on stablecoin yield would only marginally increase lending. The American Bankers Association insists that stablecoins offering yields comparable to high-yield savings accounts would lead to depositors moving money out of banks and into digital dollars, reducing the funds available for loans. Nevertheless, the White House economists argue that the bankers' argument misunderstands how stablecoins interact with the broader financial system.
The report explains that funds used to buy stablecoins are often reinvested in Treasury bills and ultimately redeposited into other banks, leaving overall deposit levels largely unchanged. The study also addresses concerns that community banks could lose out as funds flow into Treasuries and large institutions, finding that the impact on smaller lenders is limited. The report estimates that community banks would account for just 24% of any incremental lending under a yield ban, equivalent to around $500 million. The economists conclude that the answer lies not in the level of deposits, but in their composition, and that the shifts between banks do not force lenders to shrink their balance sheets.
Rather than disappearing from the banking sector, much of the money backing stablecoins is recycled through it. The report suggests that policymakers must demonstrate that restricting stablecoin yields would deliver tangible benefits to the real economy, particularly to small businesses and households that rely on bank lending. So far, according to the administration's own economists, that case remains unproven.