A recent White House report challenges the banking industry's assertion that stablecoin yields would lead to a decline in deposits and lending to households and small businesses. Instead, the analysis by the Council of Economic Advisers (CEA) discovered that banning stablecoin rewards would have a negligible impact on credit creation. The report, which examines the GENIUS Act, warns that proposed restrictions on 'yield-like' rewards from intermediaries could be counterproductive.
It emphasizes that prohibiting yield would do little to protect bank lending, while depriving consumers of competitive returns on stablecoin holdings. The findings are based on a stylized economic model using Federal Reserve and FDIC data, as well as industry disclosures on stablecoin reserves. The report suggests that the conditions for a positive welfare effect from prohibiting yield are implausible, and that the prohibition would do little to protect lending while stripping consumers of benefits. This development marks the latest 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 yield-like rewards on stablecoins should be allowed, while banks warn that this would lead to funds being diverted from the traditional financial system.
However, the report claims that even a full ban on stablecoin yield would only marginally increase lending. The American Bankers Association (ABA) insists that if stablecoins offer 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 argue that the bankers' argument misunderstands how stablecoins interact with the broader financial system. The report explains that funds used to buy stablecoins are often reinvested in Treasury bills and ultimately redeposited into other banks, leaving overall deposit levels largely unchanged. It also addresses concerns that community banks could lose out as funds flow into Treasuries and large institutions, finding the impact on smaller lenders is limited.
The report estimates that community banks would account for just 24% of any incremental lending under a yield ban, and notes that stablecoin activity is already concentrated among large financial institutions. The White House economists contend that the policy delivers minimal benefits to the institutions it is intended to protect. The report said generating large lending effects requires hypothetically stacking several extreme conditions at once, and that absent those scenarios, the impact remains marginal. By eliminating yield, policymakers would effectively 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.