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, found that banning stablecoin rewards would have only a minimal impact on credit creation. The analysis is based on a stylized economic model that incorporates 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 report's findings suggest that a yield prohibition would do little to protect bank lending, while depriving consumers of competitive returns on stablecoin holdings.
The White House economists argue that the conditions necessary to achieve a positive welfare effect from prohibiting yield are implausible. 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 claim that this would lead to a decline in traditional deposits. However, the report's findings could undermine a key argument made by banking groups: that a full ban on stablecoin yield would significantly increase lending. The report claims that the prohibition would do little to protect lending, while stripping consumers of competitive returns.
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. However, the White House economists argue that this perspective misunderstands how stablecoins interact with the broader financial system.
The report explains that funds used to buy 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 lose out as funds flow into Treasuries and large institutions, finding that the impact on smaller lenders is limited. The report estimates that community banks would account for just 24% of any incremental lending under a yield ban, or approximately $500 million. The White House economists conclude that the answer lies not in the level of deposits, but in their composition.
Under the current 'ample reserves' regime, 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 report finds that only a small share of stablecoin reserves, estimated at around 12%, is held in forms that could meaningfully restrict lending.
Even then, the effect is heavily diluted by bank reserve requirements and liquidity buffers, which absorb much of the potential impact before it reaches borrowers. 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 weakens the argument that stablecoin yields pose a particular threat to community banks, as smaller lenders would see just $500 million in additional lending under a yield ban, an increase of roughly 0.026%.
The White House economists contend that the policy delivers minimal benefits to the very institutions it is often framed as protecting. The report suggests that generating large lending effects requires hypothetically stacking several extreme conditions at once: a stablecoin market many times larger than today's, reserves fully locked away from lending, and a shift in Federal Reserve policy away from its current ample-reserves framework.
Absent these scenarios, the impact remains marginal. 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. Rather than assuming stablecoin yields are destabilizing, the report suggests policymakers must demonstrate that restricting them would deliver tangible benefits to the real economy, particularly to small businesses and households that rely on bank lending.