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. Instead, the report found that banning stablecoin rewards would have a negligible impact on credit creation.
The analysis, based on a stylized economic model and data from the Federal Reserve and FDIC, suggests that the benefits of competitive returns on stablecoin holdings would be lost if yields were prohibited. The report warns that proposed updates to the Digital Asset Market Clarity Act could be counterproductive and that the conditions for finding a positive effect from prohibiting yield are implausible. This report marks the latest development in the conflict between the US banking industry and the cryptocurrency sector, which has stalled digital asset legislation in Congress. The crypto industry argues that yield-like rewards on stablecoins should be allowed, while banks claim this would lead to funds being diverted from the traditional financial system.
However, the report's findings could undermine a key argument from banking groups, as even a full ban on stablecoin yields 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, with community banks accounting for just 24% of any incremental lending under a yield ban. The White House economists contend that the policy delivers minimal benefits to the institutions it aims to protect and that the costs of prohibiting yield would fall on consumers, who would give up competitive returns without receiving meaningful improvements in credit availability.