A newly released White House report challenges the banking industry's assertion 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, found that prohibiting stablecoin rewards would have a negligible effect on credit creation.
The report's findings are based on a stylized economic model that utilizes 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 study specifically examines the GENIUS Act and warns that proposed updates to the Digital Asset Market Clarity Act could be counterproductive. The White House economists conclude that a yield prohibition would do little to protect bank lending, while depriving consumers of competitive returns on stablecoin holdings.
The report marks a significant 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 permitted, while banks claim that this would lead to a loss of funds from the traditional financial system.
However, the report suggests that even a full ban on stablecoin yield would only marginally increase lending. The American Bankers Association insists that stablecoins offering yields comparable to high-yield savings accounts would lead to depositors moving money out of banks and into digital dollars, reducing the funds available for loans. Nevertheless, the White House economists argue that this perspective misunderstands the interaction between stablecoins and the broader financial system.
The report notes 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, finding that the impact on smaller lenders is limited. The report estimates that community banks would account for only 24% of any incremental lending under a yield ban, approximately $500 million.
The economists explain that the answer lies not in the level of deposits, but in their composition, and that the 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 about 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 White House economists contend that the policy delivers minimal benefits to the institutions it is intended to protect.
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.