A recent White House report directly challenges claims made by the banking industry that stablecoin yields would lead to a decline in deposits and a weakening of lending to households and small businesses. Instead, the analysis found that banning these rewards would have a negligible impact on credit creation. The report, released by the Council of Economic Advisers, is 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 how consumers shift funds between assets.
The findings suggest that proposed updates to the Digital Asset Market Clarity Act that restrict 'yield-like' rewards from intermediaries could be counterproductive. The report emphasizes that prohibiting yields would do little to protect bank lending, while depriving consumers of the benefits of competitive returns on stablecoin holdings. It 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 argues that they should be allowed to offer yield-like rewards on stablecoins, while banks warn that this would lead to a shift of funds away from the traditional financial system. However, the report claims that even a full ban on stablecoin yields would only marginally increase lending.
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. The White House economists, however, argue that this misunderstands how stablecoins interact with the broader financial system.
They contend that 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 about $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 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.