White House Study Supports Crypto's Stance on Stablecoin Yields in Dispute with Banking Sector

A recent report released by the White House challenges the banking industry's assertion that stablecoin yields would lead to a decline in deposits and lending to small businesses and households. Instead, the analysis found that banning these rewards would have a negligible impact on credit creation.

The report, which examines the GENIUS Act and proposed updates to the Digital Asset Market Clarity Act, suggests that restricting 'yield-like' rewards could be counterproductive. The findings are based on an economic model that utilizes data from the Federal Reserve, FDIC, and industry disclosures. The report emphasizes that prohibiting yield would do little to protect bank lending, while also forgoing the benefits of competitive returns on stablecoin holdings for consumers.

This development is the latest 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 a decline in traditional deposits.

However, the report's findings suggest that even a full ban on stablecoin yield would only marginally increase lending. The American Bankers Association argues that if stablecoins offer yields comparable to high-yield savings accounts, depositors will move their money out of banks and into digital dollars, reducing the funds available for loans. Nevertheless, the White House economists contend that this argument misunderstands the interaction between stablecoins and the broader financial system.

The report also addresses concerns that community banks could be harmed, finding that the impact on smaller lenders would be limited. It estimates that community banks would account for only 24% of any incremental lending under a yield ban, approximately $500 million. The report concludes that the answer lies not in the level of deposits, but in their composition, and that the money backing stablecoins is often recycled through the banking system. As a result, the report suggests that policymakers must demonstrate that restricting stablecoin yields would deliver tangible benefits to the real economy, particularly to small businesses and households that rely on bank lending.