A recent White House report has challenged the banking industry's claims that stablecoin yields would harm banks and weaken lending to households and small businesses. The report, released by the Council of Economic Advisers, found that banning stablecoin rewards would have only a minor effect on credit creation. The analysis was based on a stylized economic model using Federal Reserve and FDIC data, as well as industry disclosures on stablecoin reserves. The report warned that proposed updates to the Digital Asset Market Clarity Act, which would restrict yield-like rewards from intermediaries like Coinbase, could be counterproductive.
The economists behind the report stated that a yield prohibition would do little to protect bank lending, while depriving consumers of competitive returns on stablecoin holdings. The report is the latest development in the ongoing conflict between US banks and the cryptocurrency industry, which has stalled digital asset legislation in Congress.
The crypto industry argues that they should be allowed to offer yield-like rewards on stablecoins, while banks warn that this would lead to funds being siphoned away from the traditional financial system. However, the report's findings suggest that even a full ban on stablecoin yield would increase lending only marginally.
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 banks use to make loans. Nevertheless, the White House economists claim that the bankers' argument misunderstands how stablecoins interact with the broader financial system.
The report estimates that community banks would account for just 24% of any incremental lending under a yield ban, or about $500 million. The economists conclude that the answer lies not in the level of deposits, but in their composition, and that the money backing stablecoins is often reinvested in Treasury bills and ultimately redeposited into other banks, preserving overall deposit levels.
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 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 reinforces 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 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.