A recent report from the White House challenges the banking industry's claims 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, discovered 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, FDIC, and industry disclosures on stablecoin reserves. The report suggests that prohibiting yields would do little to protect bank lending, while denying consumers the benefits of competitive returns on stablecoin holdings. The study 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 report's conclusions could undermine a key argument made by banking groups, which claim that a ban on stablecoin yields would increase lending. According to the report, even a full ban on stablecoin yields would only marginally increase lending. The American Bankers Association argues that if stablecoins offer yields comparable to high-yield savings accounts, depositors will move their money out of banks and into digital dollars, reducing the funds available for loans.
However, the White House economists contend that this argument misunderstands how stablecoins interact with 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. The study also addresses concerns that community banks could be harmed by a yield ban, finding that the impact on smaller lenders would be limited.
The report estimates that community banks would account for only 24% of any incremental lending under a yield ban, equivalent to approximately $500 million. The economists behind the report 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.