A recent White House report directly challenges claims made by the banking industry that stablecoin yields would lead to a decline in deposits and weaken lending to households and small businesses. The report, released by the Council of Economic Advisers, concludes that banning stablecoin rewards would have a negligible impact on credit creation.
The findings are based on an economic model that utilizes data from the Federal Reserve and the FDIC, as well as industry disclosures and academic estimates. The report also analyzes the potential effects of the proposed updates to the Digital Asset Market Clarity Act, which could further restrict 'yield-like' rewards from intermediaries.
It warns that such a prohibition could be counterproductive, as it would do little to protect bank lending while depriving consumers of competitive returns on stablecoin holdings. The study suggests that the conditions required for a positive effect from prohibiting yield are implausible. This 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 warn that this would lead to funds being diverted away from the traditional financial system.
However, the report's findings could undermine a key argument made by banking groups: that even a full ban on stablecoin yield would only marginally 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 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 available for loans.
However, the White House economists argue that this claim misunderstands how stablecoins interact with the broader financial system. According to the report, 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 that the impact on smaller lenders is 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 explains 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.
When issuers invest reserves in Treasury bills or similar instruments, those funds typically end up redeposited elsewhere in the banking system, preserving overall deposit levels even if individual banks experience outflows. Only a small share of stablecoin reserves, estimated at around 12% in the report's baseline, 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: tens of billions of dollars may move between stablecoins and deposits, but only a fraction ultimately translates into new loans. This dynamic also weakens the argument that stablecoin yields pose a particular threat to community banks.
According to the report, 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 states 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 those scenarios, the impact remains marginal.
The report also reinforces the crypto industry's arguments in consumer terms, suggesting that policymakers must demonstrate that restricting stablecoin yields would deliver tangible benefits to the real economy, particularly to small businesses and households that rely on bank lending. So far, according to the administration's own economists, that case remains unproven.