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. Instead, the analysis suggests that banning these rewards would have a negligible effect on credit creation.
The report, which examined the GENIUS Act and proposed updates to the Digital Asset Market Clarity Act, warns that restricting 'yield-like' rewards from intermediaries could be counterproductive. The findings are based on an economic model that uses Federal Reserve and FDIC data, as well as industry disclosures and academic estimates. The report concludes that a yield prohibition would do little to protect bank lending, while depriving consumers of competitive returns on stablecoin holdings. The study also addresses concerns about the impact on community banks, finding that the effects would be limited.
The report's authors argue that the conditions for a positive welfare effect from prohibiting yield are 'simply implausible.' The findings could undermine a key argument made by banking groups: that a ban on stablecoin yield would significantly increase lending. The report suggests that the prohibition would do little to protect lending, while stripping consumers of competitive returns.
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 banks use to make loans. However, the White House economists say that this argument misunderstands how stablecoins interact with the broader financial system.
The report describes how 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 estimates that community banks would account for just 24% of any incremental lending under a yield ban, or about $500 million. The study concludes 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. 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: 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 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.