A recently released 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. The report, issued by the Council of Economic Advisers, found that banning stablecoin rewards would have only a minor effect on credit creation. The analysis, based on a stylized economic model and data from the Federal Reserve and FDIC, also warns that proposed restrictions on 'yield-like' rewards from intermediaries like Coinbase could be counterproductive.
The report emphasizes that a yield prohibition would do little to protect bank lending, while depriving consumers of competitive returns on stablecoin holdings. The findings are the latest development in the ongoing conflict between US banks and the cryptocurrency industry, which has stalled digital asset legislation in Congress.
The report undercuts a key argument from banking groups, suggesting that even a full ban on stablecoin yield would only marginally increase lending. The White House economists argue that the prohibition would do little to protect lending, while stripping consumers of competitive returns. The report 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 economists estimate that community banks would account for just 24% of any incremental lending under a yield ban, or about $500 million.
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, much of the money backing stablecoins is recycled through the banking system, preserving overall deposit levels even if individual banks see outflows. 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 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 estimate that such a prohibition would carry a net welfare cost, as users give up yield without receiving meaningful improvements in credit availability in return.