A recent report from the White House challenges the banking industry's claims that stablecoin yields would lead to a decline in deposits and a reduction in lending to households and small businesses. Instead, the analysis found that banning stablecoin rewards would have a negligible impact on credit creation. The report, which examines the GENIUS Act and potential updates to the Digital Asset Market Clarity Act, warns that restricting 'yield-like' rewards from intermediaries could be counterproductive. The study's findings are based on an economic model that utilizes data from the Federal Reserve, FDIC, and industry disclosures.
The report emphasizes that a yield prohibition would do little to protect bank lending, while depriving consumers of competitive returns on stablecoin holdings. This marks the latest development in the ongoing conflict between U.S. 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 suggests that even a full ban on stablecoin yield would only marginally increase lending. The American Bankers Association claims that if stablecoins offer yields comparable to high-yield savings accounts, depositors will move money out of banks and into digital dollars, reducing the funds available for loans.
Nevertheless, the White House economists argue that this perspective misunderstands the interaction between stablecoins and 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 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, approximately $500 million. The White House economists contend that the policy delivers minimal benefits to the institutions it is intended to protect. The report suggests that generating large lending effects requires extreme conditions, including a significantly larger stablecoin market, reserves fully locked away from lending, and a shift in Federal Reserve policy.
The report also highlights the costs to consumers, as eliminating yield would reduce returns on 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.