A recent report from the White House challenges the banking industry's claims that stablecoin yields would lead to a decline in deposits and lending to households and small businesses. Instead, the analysis found that prohibiting these rewards would have a negligible impact on credit creation. The report, which examined the GENIUS Act and proposed updates to the Digital Asset Market Clarity Act, warns that further restrictions on 'yield-like' rewards could be counterproductive. The White House economists based their findings on a stylized economic model that utilized data from the Federal Reserve and FDIC on deposits, lending, and bank liquidity, as well as industry disclosures on stablecoin reserves.
The report emphasizes that a yield prohibition would do little to protect bank lending, while denying consumers the benefits of competitive returns on stablecoin holdings. The findings mark 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 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 suggests that even a full ban on stablecoin yield would only marginally increase lending. 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.
Nevertheless, the White House economists argue that the bankers' argument 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 report also addresses concerns that community banks could lose out as funds flow into Treasuries and large institutions, finding the impact on smaller lenders to be limited. It estimates that community banks would account for just 24% of any incremental lending under a yield ban, or approximately $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. Rather than disappearing from the banking sector, much of the money backing stablecoins is recycled through it.
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 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.