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 study, conducted by the Council of Economic Advisers, discovered that banning stablecoin rewards would have only a minor effect on credit creation. The report's findings are based on an economic model that incorporates data from the Federal Reserve and FDIC on deposits, lending, and bank liquidity, as well as industry disclosures on stablecoin reserves and academic estimates of consumer behavior. The White House economists argue that proposed updates to the Digital Asset Market Clarity Act, which aim to restrict 'yield-like' rewards from intermediaries like Coinbase, could be counterproductive.
The report emphasizes that a yield prohibition would do little to protect bank lending, while depriving consumers of competitive returns on stablecoin holdings. The study marks the latest development in the ongoing conflict between the US banking industry and the cryptocurrency sector, which has stalled digital asset legislation in Congress. The crypto industry and its legislative supporters argue that they should be allowed to offer yield-like rewards on stablecoins, while banks warn that this would lead to a decline in traditional deposits.
However, the report's findings suggest that even a full ban on stablecoin yield would increase lending only marginally. The economists claim that the prohibition would do little to protect lending, while stripping consumers of competitive returns.
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 banks use to make 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, or about $500 million.
The economists conclude 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. When issuers invest reserves in Treasury bills or similar instruments, those funds typically end up redeposited elsewhere in 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.