A recent White House report challenges the banking industry's claims that stablecoin yields harm banks by draining deposits and weakening lending to households and small businesses. Instead, the analysis suggests that banning stablecoin rewards would have a negligible impact on credit creation. The report, which examines the GENIUS Act and the proposed updates to the Digital Asset Market Clarity Act, warns that restricting 'yield-like' rewards from intermediaries could be counterproductive. The findings are based on a stylized economic model using Federal Reserve and FDIC data, as well as industry disclosures and academic estimates.
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 ongoing conflict between US 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 siphoned away from the traditional financial system. However, the report claims that even a full ban on stablecoin yield would increase lending only marginally.
The American Bankers Association insists that stablecoins offering yields comparable to high-yield savings accounts would lead to depositors moving money out of banks and into digital dollars, reducing the funds banks use to make loans. The White House economists argue that this misunderstands how stablecoins interact with the broader financial system, as 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 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 explains 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. Rather than disappearing from the banking sector, much of the money backing stablecoins is recycled through it.
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. This weakens the argument that stablecoin yields pose a particular threat to community banks. The report contends that the policy delivers minimal benefits to the very institutions it is often framed as protecting.
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. Rather than assuming stablecoin yields are destabilizing, the report suggested policymakers must demonstrate that restricting them would deliver tangible benefits to the real economy, particularly to small businesses and households that rely on bank lending.