A recent report from the White House has disputed the banking industry's assertion that stablecoin yields would lead to a decline in deposits and lending to households and small businesses. The analysis, conducted by the Council of Economic Advisers, discovered that prohibiting stablecoin rewards would have a negligible impact on credit creation.
The report's findings are based on an economic model that utilizes data from the Federal Reserve and the FDIC, as well as industry disclosures on stablecoin reserves and academic estimates of consumer behavior. The study specifically examined the GENIUS Act and warned that proposed updates to the Digital Asset Market Clarity Act could be counterproductive. The report stated that a yield prohibition would do little to protect bank lending, while depriving consumers of competitive returns on stablecoin holdings. The White House economists argued that the conditions necessary to justify a yield prohibition are implausible and that such a policy would have a minimal impact on lending.
The report marks the latest development in the ongoing conflict between the US banking industry and the cryptocurrency sector, which has stalled digital asset legislation in Congress. While crypto firms argue that they should be allowed to offer yield-like rewards on stablecoins, banks claim that this would lead to a decline in deposits. However, the report's findings suggest that even a full ban on stablecoin yields would only marginally increase lending.
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 available for loans. Nevertheless, the White House economists countered that this argument misunderstands the interaction between stablecoins and the broader financial system.
The report found 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 study also addressed concerns that community banks could lose out as funds flow into Treasuries and large institutions, concluding that the impact on smaller lenders is limited. The report estimated that community banks would account for only 24% of any incremental lending under a yield ban, or approximately $500 million.
The White House economists emphasized 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, preserving overall deposit levels even if individual banks experience outflows.
Only a small share of stablecoin reserves, estimated at around 12%, is held in forms that could meaningfully restrict lending. The report concluded that the policy of prohibiting stablecoin yields would deliver minimal benefits to the institutions it is intended to protect. The study also reinforced 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.