A recent report from the White House 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, discovered that prohibiting stablecoin rewards would have only a minimal effect on credit creation. The report's findings are based on a calibrated economic model that utilizes data from the Federal Reserve, FDIC, and industry disclosures on stablecoin reserves. The study specifically examines the GENIUS Act and warns that proposed updates to the Digital Asset Market Clarity Act could be counterproductive.
The economists behind the report argue that a yield prohibition would not significantly 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.
The crypto industry and its supporters argue that they 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 yield would only marginally increase lending. The economists contend that the prohibition would do little to protect lending while stripping consumers of competitive returns.
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 banks use to make loans. However, the White House economists argue that this argument misunderstands how stablecoins interact with the broader financial system. 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. The economists estimate that community banks would account for just 24% of any incremental lending under a yield ban, which translates to approximately $500 million.
The report explains 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 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.