A recent White House report challenges the banking industry's claims that stablecoin yields would lead to a decline in deposits and lending to households and small businesses. The report, released by the Council of Economic Advisers, suggests that banning stablecoin rewards would have a negligible impact on credit creation.
The analysis is based on a stylized economic model that uses data from the Federal Reserve and the FDIC, as well as industry disclosures and academic estimates. The report also warns that restricting yield-like rewards from intermediaries could be counterproductive.
The findings emphasize 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 it should be allowed to offer yield-like rewards on stablecoins, while banks warn that this would lead to funds being diverted from the traditional financial system.
However, the report's findings suggest 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 argues 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 misunderstands how stablecoins interact with the broader financial system. The report suggests 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.
The economists estimate that community banks would account for just 24% of any incremental lending under a yield ban, or around $500 million. The report concludes 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 see outflows. The report estimates that only a small share of stablecoin reserves, around 12%, is held in forms that could meaningfully restrict lending.
Even then, the effect is heavily diluted by bank reserve requirements and liquidity buffers. 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 estimate that such a prohibition would carry a net welfare cost, as users give up yield without receiving meaningful improvements in credit availability in return.