A recent White House study challenges the banking sector's assertion that stablecoin yields would lead to a depletion of deposits and a reduction in lending to households and small businesses. Instead, the analysis reveals that prohibiting these stablecoin rewards would have a negligible impact on credit creation. The report, based on a stylized economic model and data from the Federal Reserve and FDIC, suggests that the impact of stablecoin yields on bank lending is minimal. It also warns that further restrictions on yield-like rewards could be counterproductive.
The study marks a significant development in the ongoing conflict between the US banking industry and the cryptocurrency sector, which has stalled digital asset legislation in Congress. The findings could undermine a key argument made by banking groups, which claim that a full ban on stablecoin yields would significantly increase lending.
The report argues that such a prohibition would do little to protect bank lending, while denying consumers competitive returns on their stablecoin holdings. The American Bankers Association has expressed concerns 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. However, the White House economists contend that this argument misunderstands the interaction between stablecoins and the broader financial system. They point out 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 report estimates that community banks would account for only 24% of any incremental lending under a yield ban, approximately $500 million. The study concludes that the impact of stablecoin activity on smaller lenders is limited and that the real-world effect may be even smaller.
Rather than disappearing from the banking sector, much of the money backing stablecoins is recycled through it, preserving overall deposit levels. 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 economists, this case remains unproven.