A recent report from the White House challenges the banking industry's assertion that stablecoin yields would lead to a decline in deposits and a subsequent reduction in lending to households and small businesses. The analysis, conducted by the Council of Economic Advisers, discovered that banning stablecoin rewards would have a negligible impact on credit creation.
The report's findings are based on an economic model that incorporates data from the Federal Reserve and the FDIC, as well as industry disclosures and academic estimates. The research specifically examines the GENIUS Act and cautions against proposed updates to the Digital Asset Market Clarity Act that would restrict 'yield-like' rewards from intermediaries.
The economists argue that prohibiting yields would not protect bank lending and would instead deprive consumers of competitive returns on stablecoin holdings. The report marks a significant development 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 and its supporters argue that yield-like rewards on stablecoins should be permitted, while banks warn that this would lead to a diversion of funds away from the traditional financial system. However, the report's findings suggest that even a complete ban on stablecoin yields would only marginally increase lending. The American Bankers Association claims 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 explains that funds used to purchase stablecoins are often reinvested in Treasury bills and ultimately redeposited into other banks, leaving overall deposit levels largely unchanged. The economists estimate that community banks would account for only 24% of any incremental lending under a yield ban, equivalent to 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.
Instead, much of the money backing stablecoins is recycled through the banking system, preserving overall deposit levels. 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 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.