A recent report from the White House challenges the banking industry's claim that stablecoin yields would lead to a decline in deposits and lending to small businesses and households. The analysis, conducted by the Council of Economic Advisers, discovered that banning stablecoin rewards would have a minimal impact on credit creation. The report, which examines the GENIUS Act, warns that proposed restrictions on 'yield-like' rewards from intermediaries could be counterproductive.
The findings suggest that a yield prohibition would do little to protect bank lending, while denying consumers the benefits of competitive returns on stablecoin holdings. The report 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 crypto industry argues that yield-like rewards on stablecoins should be allowed, while banks warn that this would lead to funds being diverted from the traditional financial system. However, the report's findings could undermine the banking groups' core argument, as even a full ban on stablecoin yield would only marginally increase lending. The American Bankers Association insists that if stablecoins offer yields comparable to high-yield savings accounts, depositors will move money out of banks and into digital dollars, reducing the funds available for loans. The White House economists argue that this misunderstands how stablecoins interact with the broader financial system, as 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. The economists estimate that community banks would account for just 24% of any incremental lending under a yield ban, or about $500 million. The report concludes 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 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, and that policymakers must demonstrate that restricting stablecoin yields would deliver tangible benefits to the real economy.