A recent report from the White House challenges the banking industry's assertion that stablecoin yields would lead to a decline in deposits and weaken lending to households and small businesses. Instead, the analysis by the Council of Economic Advisers discovered that banning stablecoin rewards would have a minimal impact on credit creation. The report, which examines the GENIUS Act, warns that proposed restrictions on 'yield-like' rewards from intermediaries could be counterproductive.
The findings are based on an economic model that utilizes data from the Federal Reserve, FDIC, and industry disclosures on stablecoin reserves. The report suggests that a yield prohibition would do little to protect bank lending while depriving consumers of competitive returns on stablecoin holdings. This development is the latest in the ongoing conflict between the U.S.
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 permitted, while banks claim this would lead to funds being diverted from the traditional financial system. However, the report's findings could undermine the banking groups' argument, as even a full ban on stablecoin yield would only marginally increase lending. The American Bankers Association insists that if stablecoins offer yields comparable to high-yield savings accounts, depositors will move money out of banks and into digital dollars, reducing the funds available for loans.
Nevertheless, the White House economists argue that this perspective misunderstands how stablecoins interact with the broader financial system. 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. The economists estimate that community banks would account for just 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 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.
This dynamic weakens the argument that stablecoin yields pose a particular threat to community banks. The report said that generating large lending effects requires hypothetically stacking several extreme conditions at once. The economists also reinforced the crypto industry's arguments in consumer terms, stating that eliminating yield would reduce returns on a growing category of dollar-based assets that compete with traditional deposits. The report 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.