A recent White House report challenges the banking industry's claims that stablecoin yields would lead to a decline in deposits and lending to households and small businesses. The report, released by the Council of Economic Advisers, suggests that banning stablecoin rewards would have a minimal effect on credit creation.
The findings are based on an economic model that uses data from the Federal Reserve and the FDIC, as well as industry disclosures and academic estimates. The report also warns that restricting 'yield-like' rewards from intermediaries could be counterproductive.
The study's authors argue that a yield prohibition would do little to protect bank lending, while depriving consumers of competitive returns on stablecoin holdings. The report is 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 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 from the traditional financial system.
However, the report's findings suggest that even a full ban on stablecoin yields would only marginally increase lending. 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 available for loans. However, the White House economists argue that this misunderstands how stablecoins interact with the broader financial system.
The report estimates that community banks would account for only 24% of any incremental lending under a yield ban, or around $500 million. The study also notes that stablecoin activity is already concentrated among large financial institutions, suggesting that the impact on smaller banks may be even smaller.
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.
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.