A recent White House report challenges the banking sector's claims that stablecoin yields would lead to a decline in deposits and weaken 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, warns that proposed restrictions on 'yield-like' rewards from intermediaries could be counterproductive. It emphasizes that a yield prohibition would do little to protect bank lending while denying consumers the benefits of competitive returns on stablecoin holdings.
The report marks the latest development in the ongoing conflict between US 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 claims that even a full ban on stablecoin yield would only marginally increase lending.
The White House economists contend that the prohibition would do little to protect lending while stripping consumers of competitive returns. The American Bankers Association insists 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 banks use to make loans. However, the White House economists argue that the bankers' argument misunderstands how stablecoins interact with the broader financial system. The report explains that funds used to buy stablecoins are often reinvested in Treasury bills and ultimately redeposited into other banks, leaving overall deposit levels largely unchanged.
The report also addresses concerns that community banks could lose out as funds flow into Treasuries and large institutions, finding the impact on smaller lenders is limited. It estimates 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. Under the current 'ample reserves' regime, shifts between banks do not force lenders to shrink their balance sheets.
Rather than disappearing from the banking sector, much of the money backing stablecoins is recycled through it. The result is a multi-step dampening effect: 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 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.