A White House report released Wednesday directly challenges the banking industry’s claims that stablecoin yields would deplete deposits and weaken lending to households and small businesses.
By contrast, banning such stablecoin rewards would have only a negligible impact on credit creation, according to the analysis published by the Council of Economic Advisers (CEA).
The White House economists behind the 21-page report said their findings are based on a stylized economic model calibrated with data from the Federal Reserve and FDIC on deposits, loans and bank liquidity, as well as industry disclosures on stablecoin reserves and academic estimates of how consumers transfer funds between assets.
The report, which specifically looks at the GENIUS Act, signed in July 2025, also warns that proposed updates to the Digital Asset Market Clarity Act to further restrict “yield-like” rewards from intermediaries like Coinbase could be counterproductive.
“In short, a yield ban would do very little to protect bank lending, while forgoing the consumer benefits of competitive yields from stablecoin holdings,” the report emphasizes. He added that “the conditions for finding a positive welfare effect from banning performance are simply implausible.”
The report marks the latest development in the ongoing conflict between US banks and the cryptocurrency industry that has stalled digital asset legislation in Congress, where senators are seeking a compromise to unblock the stalled Clarity Act. President Donald Trump and his advisers have been eager for negotiators – including the cryptocurrency industry, bankers and senators on both sides of the aisle – to reach an agreement that will advance the long-awaited bill, which is one of the administration’s legislative priorities.
While crypto companies and their legislative supporters argue that they should be allowed to offer rewards similar to returns on stablecoins, banks warn that this would lead to funds being diverted from the traditional financial system. But Wednesday’s findings could undermine a central argument of banking groups: even an outright ban on stablecoin yields would increase lending only marginally.
The ban does little to protect loans
In other words, the report stated, the ban would do little to protect loans while depriving consumers of competitive returns.
The American Bankers Association (ABA) insists that if stablecoins start offering returns comparable to high-yield savings accounts, depositors will take money out of banks and put it into digital dollars, reducing the funds banks use to make loans. Banking lobbyists have argued that community bankers will be especially hurt, an argument that has caught the attention of lawmakers like Sens. Thom Tillis, a Republican, and Angela Alsobrooks, a Democrat, who have been seeking a legislative compromise that doesn’t hurt traditional institutions.
However, White House economists said the bankers’ argument misunderstands how stablecoins interact with the broader financial system. In one example, the report describes how funds used to purchase stablecoins are often reinvested in Treasury bills and ultimately redeposited in 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, and finds that the impact on smaller lenders is limited. He estimates that community banks would account for just 24% of any incremental lending under a yield ban, or about $500 million, and notes that stablecoin activity is already concentrated among large financial institutions, suggesting the real-world effect on smaller banks may be even smaller.
“The answer is not in the level of deposits, but in their composition,” the report explains. Under the current “ample reserves” regime, these changes between banks do not force lenders to reduce their balance sheets.
Instead of disappearing from the banking sector, much of the money backing stablecoins is recycled through it. When issuers invest reserves in Treasury bills or similar instruments, those funds typically end up redeposited elsewhere in the banking system, preserving overall deposit levels even if individual banks experience capital outflows.
Only a small proportion of stablecoin reserves, estimated at around 12% based on the report, are held in ways that could significantly restrict lending. Even then, the effect is greatly diluted by bank reserve requirements and liquidity buffers, which absorb much of the potential impact before it reaches borrowers.
The result is a multi-step dampening effect: tens of billions of dollars may move between stablecoins and deposits, but only a fraction ultimately translates into new loans.
That dynamic also weakens the argument that stablecoin yields pose a particular threat to community banks. According to the report, smaller lenders would receive only $500 million in additional loans under a yield ban, an increase of about 0.026%.
In other words, White House economists argue that the policy offers minimal benefits to the very institutions it is often portrayed as protecting.
The report says that generating large credit effects hypothetically requires accumulating several extreme conditions at once: a stablecoin market many times larger than the current one, reserves completely locked up for lending, and a shift in Federal Reserve policy away from its current ample reserves framework. Without those scenarios, the impact remains marginal, he said.
Costs fall on consumers
The report also reinforced the crypto industry’s arguments in terms of consumption. By eliminating the yield, authorities would effectively reduce yields on a growing category of dollar-based assets that compete with traditional deposits.
Economists estimated that such a ban would carry a net welfare cost, as users give up performance without receiving significant improvements in credit availability in return. Rather than assuming that stablecoin yields are destabilizing, the report suggests that policymakers should demonstrate that restricting them would deliver tangible benefits to the real economy, particularly small businesses and households that rely on bank loans.
So far, according to the administration’s own economists, that case remains unproven.
