A recent report from the White House challenges the banking industry's claims that stablecoin yields would lead to a decline in deposits and lending to small businesses and households. The analysis, conducted by the Council of Economic Advisers, discovered that prohibiting these rewards would have a negligible effect on credit creation.
The report, which examines the GENIUS Act, warns that proposed restrictions on yield-like rewards from intermediaries could be counterproductive. The findings are based on an economic model that utilizes data from the Federal Reserve and the FDIC, as well as industry disclosures and academic estimates. The report emphasizes that a yield prohibition would do little to protect bank lending while denying consumers the benefits of competitive returns on stablecoin holdings. This marks the latest development in the ongoing conflict between the US banking industry and the cryptocurrency sector, 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 a decline in traditional deposits. However, the report suggests that even a full ban on stablecoin yields would only marginally increase lending.
The American Bankers Association claims that if stablecoins offer yields comparable to high-yield savings accounts, depositors will move their funds out of banks and into digital dollars, reducing the funds available for loans. Nevertheless, the White House economists argue that this perspective misunderstands how stablecoins interact with the broader financial system.
The report notes that funds used to purchase stablecoins are often reinvested in Treasury bills and ultimately redeposited into other banks, leaving overall deposit levels largely unchanged. The economists also found that the impact on community banks would be limited, with these institutions accounting for only 24% of any incremental lending under a yield ban. The report concludes 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.
Instead, the money backing stablecoins is recycled through the banking system, preserving overall deposit levels. The result is a multi-step dampening effect, where tens of billions of dollars may move between stablecoins and deposits, but only a fraction ultimately translates into new loans. The report also reinforces the crypto industry's arguments in consumer terms, suggesting that eliminating yield would reduce returns on a growing category of dollar-based assets that compete with traditional deposits.
The economists estimated that such a prohibition would carry a net welfare cost, as users give up yield without receiving meaningful improvements in credit availability in return.