A White House report released Wednesday directly challenges the banking industry’s claims that stable coin yields would drain deposits and weaken lending to households and small businesses.
Instead, banning these 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 Federal Reserve and FDIC data on deposits, loans and bank liquidity, as well as industry disclosures on stablecoin reserves and academic estimates on how consumers move their funds between assets.
The report, which specifically analyzes the GENIUS Act, signed into law 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 little to protect bank lending, while foregoing the consumer benefits of a competitive yield on stablecoin holdings,” the report points out. He adds that “the conditions for concluding a positive effect on welfare from a yield ban are simply implausible”.
The report marks the latest development in the ongoing conflict between U.S. banks and the cryptocurrency industry that has blocked digital asset legislation in Congress, where senators are seeking a compromise to unblock the stalled Clarity Act. President Donald Trump and his advisers are eager for negotiators — including the crypto industry, bankers and senators from both sides of the aisle — to reach a deal that advances the long-awaited bill, which is one of the administration’s legislative priorities.
While crypto companies and their legislative supporters argue they should be allowed to offer yield-like rewards on stablecoins, banks warn this would lead to a siphoning of funds from the traditional financial system. But Wednesday’s findings could undermine a fundamental argument by banking groups: Even a complete ban on stablecoin yields would only marginally increase lending.
Ban does little to protect loans
In other words, the report argues, the ban would do little to protect lending 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 move their money from banks to digital dollars, thereby reducing the funds banks use to make loans. Banking industry lobbyists argued that community bankers would be particularly hard hit — an argument that caught the attention of lawmakers such as Senators Thom Tillis, a Republican, and Angela Alsobrooks, a Democrat, who were seeking a legislative compromise that would not harm Main Street institutions.
However, White House economists said the bankers’ argument misses how stablecoins interact with the broader financial system. In one example, the report describes how funds used to purchase stablecoins are often reinvested in Treasuries and ultimately redeposited at other banks, leaving overall deposit levels largely unchanged.
The report also addresses concerns that community banks could lose out as funds flow to Treasurys and larger institutions, finding that the impact on smaller lenders is limited. He estimates that community banks would account for only 24% of any additional lending under a yield ban, or about $500 million, and notes that stablecoin activity is already concentrated among large financial institutions, suggesting that the actual effect on smaller banks may be even smaller.
“The answer lies not in the level of deposits, but in their composition,” the report explains. Under the current “plenty reserves” regime, these transfers between banks do not require lenders to reduce their balance sheets.
Rather than disappearing from the banking sector, much of the money that backs stablecoins is recycled through it. When issuers invest their reserves in Treasury bills or similar instruments, those funds typically end up being redeposited elsewhere in the banking system, thereby preserving overall deposit levels even if individual banks experience capital outflows.
Only a small share of stable reserves, estimated at around 12% in the report’s baseline, is held in forms that could significantly restrict lending. Even then, the effect is heavily diluted by bank reserve requirements and liquidity buffers, which absorb much of the potential impact before it reaches borrowers.
The result is a multi-stage dampening effect: tens of billions of dollars may flow between stablecoins and deposits, but only a fraction ultimately translates into new loans.
This dynamic also weakens the argument that stable coin yields pose a particular threat to community banks. According to the report, small lenders would only see $500 million in additional loans under a yield ban, an increase of about 0.026%.
In other words, White House economists say the policy provides only minimal benefits to the very institutions it is often portrayed as protecting.
The report states that generating large lending effects hypothetically requires accumulating several extreme conditions at once: a stable coin market several times larger than today, fully locked-in reserves for lending, and a change in Federal Reserve policy from its current framework of abundant reserves. In the absence of these scenarios, the impact remains marginal, he adds.
Costs fall on consumers
The report also strengthened the crypto industry’s consumer case. By eliminating yield, policymakers would effectively reduce returns on a growing class of dollar-denominated assets that compete with traditional deposits.
Economists estimate that such a ban would result in a net welfare cost, as users would forgo their returns without benefiting in return from significant improvements in the availability of credit. Rather than assuming that stablecoin yields are destabilizing, the report suggests that policymakers need to demonstrate that restricting them would bring 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, this hypothesis has not yet been proven.
