A recent White House report has directly challenged the banking industry's assertions that stablecoin yields would lead to a decline in deposits and lending to households and small businesses. The report, released by the Council of Economic Advisers, found that banning stablecoin rewards would have a negligible effect on credit creation. The analysis was based on a stylized economic model that utilized data from the Federal Reserve and FDIC on deposits, lending, and bank liquidity, as well as industry disclosures on stablecoin reserves.
The report warned that proposed updates to the Digital Asset Market Clarity Act, which would further restrict 'yield-like' rewards from intermediaries like Coinbase, could be counterproductive. It emphasized that a yield prohibition would do little to protect bank lending, while also depriving consumers of competitive returns on stablecoin holdings.
The report marks the latest development in the ongoing conflict between U.S. banks and the cryptocurrency industry, which has stalled digital asset legislation in Congress.
While crypto firms argue that they should be allowed to offer yield-like rewards on stablecoins, banks claim 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 yield would only marginally increase lending. The American Bankers Association has argued 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 contend that this 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 that 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 approximately $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.
Instead, much of the money backing stablecoins is recycled through the banking system, preserving overall deposit levels even if individual banks see outflows. 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 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.