A recent report from the White House challenges the banking industry's claims that yields on stablecoins would lead to a decline in deposits and lending to small businesses and households. The analysis, conducted by the Council of Economic Advisers, discovered that prohibiting these yields would have a minimal impact on credit creation. The report, which examines the GENIUS Act, warns that restricting 'yield-like' rewards from intermediaries could be counterproductive. It emphasizes that a yield prohibition would do little to protect bank lending, while depriving consumers of competitive returns on stablecoin holdings.
The study's findings are based on an economic model calibrated with data from the Federal Reserve and FDIC, as well as industry disclosures and academic estimates. 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 it should be allowed to offer yield-like rewards on stablecoins, while banks warn that this would lead to funds being diverted away from the traditional financial system. However, the report's findings suggest that even a full ban on stablecoin yields would increase lending only marginally.
The American Bankers Association insists that if stablecoins begin offering yields comparable to high-yield savings accounts, depositors will move money out of banks and into digital dollars, reducing the funds available for loans. Nevertheless, 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 study 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 report estimates that community banks would account for just 24% of any incremental lending under a yield ban, approximately $500 million.
The White House economists contend that the policy delivers minimal benefits to the institutions it is intended to protect. The report said that generating large lending effects requires hypothetically stacking several extreme conditions at once, including a stablecoin market many times larger than today's, reserves fully locked away from lending, and a shift in Federal Reserve policy away from its current ample-reserves framework.
Absent these scenarios, the impact remains marginal. The report also reinforced the crypto industry's arguments in consumer terms, stating 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.