A recent report from the White House challenges the banking industry's assertion that stablecoin yields would lead to a decline in deposits and lending to households and small businesses. The analysis, conducted by the Council of Economic Advisers, found that banning stablecoin 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 an economic model that utilizes data from the Federal Reserve and 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 U.S.
banking sector and the cryptocurrency industry, which has stalled digital asset legislation in Congress. The crypto industry argues that yield-like rewards on stablecoins should be permitted, while banks claim 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 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 this perspective misunderstands the interaction between stablecoins and the broader financial system. The report explains that funds used to purchase stablecoins are often reinvested in Treasury bills and ultimately redeposited into other banks, leaving overall deposit levels largely unchanged.
It also addresses concerns that community banks could be harmed, 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 approximately $500 million. The economists conclude that the answer lies not in the level of deposits, but in their composition. Under the current 'ample reserves' regime, 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. The report finds that only a small share of stablecoin reserves, estimated at about 12%, is held in forms that could restrict lending.
The result is a multi-step dampening effect, where tens of billions of dollars may move between stablecoins and deposits, but only a fraction translates into new loans. This dynamic weakens the argument that stablecoin yields pose a threat to community banks. The report contends that the policy delivers minimal benefits to the institutions it aims to protect. The economists argue 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 reinforces the crypto industry's arguments in terms of consumer benefits, suggesting that eliminating yield would reduce returns on 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.
They propose 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.