A recent report from the White House challenges the banking industry's assertion that stablecoin yields would lead to a decline in deposits and a subsequent reduction in lending to households and small businesses. Instead, 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 proposes updates to the Digital Asset Market Clarity Act, cautions that restricting 'yield-like' rewards from intermediaries could be counterproductive. It emphasizes that prohibiting yield would do little to protect bank lending, while also depriving consumers of competitive returns on stablecoin holdings. The findings of the report are based on an economic model that incorporates data from the Federal Reserve and the FDIC, as well as industry disclosures on stablecoin reserves and academic estimates of consumer behavior.
The report marks the latest development in the ongoing conflict between the US 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 warn that this would lead to a decline in traditional deposits. 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 their funds out of banks and into digital dollars, reducing the funds available for lending.
Nevertheless, the White House economists contend that this argument 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 negatively impacted, finding that the effect on smaller lenders is limited. The report estimates that community banks would account for only 24% of any incremental lending under a yield ban, approximately $500 million. The White House economists argue 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 concludes that only a small share of stablecoin reserves, estimated at around 12%, is held in forms that could meaningfully 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 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 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.