A recently released 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. Instead, the analysis found that banning stablecoin rewards would have a minimal effect on credit creation.
The report, which examines the GENIUS Act and the Digital Asset Market Clarity Act, warns that restricting "yield-like" rewards from intermediaries could be counterproductive. The study's findings are based on a stylized economic model that uses data from the Federal Reserve, FDIC, and industry disclosures on stablecoin reserves.
The report concludes that a yield prohibition would do little to protect bank lending, while depriving consumers of competitive returns on stablecoin holdings. This marks the latest development in the conflict between U.S. 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 claim that this would lead to funds being diverted from the traditional financial system. However, the White House report suggests that even a full ban on stablecoin yield would only marginally increase lending.
The report also addresses concerns that community banks could be harmed, finding that the impact on smaller lenders would be limited. The study estimates that community banks would account for just 24% of any incremental lending under a yield ban, which would amount to approximately $500 million. The report's authors argue that the bankers' argument misunderstands how stablecoins interact with the broader financial system, and that funds used to buy stablecoins are often reinvested in Treasury bills and ultimately redeposited into other banks, leaving overall deposit levels largely unchanged.
Rather than disappearing from the banking sector, much of the money backing stablecoins is recycled through it, 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's findings support the crypto industry's arguments and suggest that policymakers must demonstrate that restricting stablecoin yields would deliver tangible benefits to the real economy, particularly to small businesses and households that rely on bank lending.