A White House report released Wednesday directly challenges the banking industry’s claims that stablecoin yields would deplete deposits and weaken credit to households and small businesses.
On the contrary, banning these stablecoin rewards would have only a negligible impact on credit creation, concluded the analysis published by the Council of Economic Advisers (CEA).
White House economists behind the 21-page report said their findings were based on a stylized economic model calibrated with data from the Federal Reserve and the FDIC on deposits, loans and banking liquidity, as well as industry disclosures relating to stablecoin reserves and academic estimates of consumer funds movements between different assets.
The report, which specifically analyzes the GENIUS Act, signed in July 2025, also warns that proposed updates to the Digital Asset Market Clarity Act aimed at further restricting “yield-like” rewards from intermediaries such as Coinbase could be counterproductive.
“In short, a ban on yields would do very little to protect bank lending, while foregoing the consumer benefits of competing yields on stablecoin holdings,” the report noted. He added that “the conditions for finding a positive welfare effect by banning yields are simply unlikely.” HAS”
The report marks the latest development in the ongoing conflict between U.S. banks and the cryptocurrency industry, which 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 expressed eagerness for negotiators — including the cryptocurrency industry, bankers and senators from both sides — to reach an agreement that advances the long-awaited bill, one of the administration’s legislative priorities.
While crypto companies and their legislative supporters argue that they should be allowed to offer yield-like rewards on stablecoins, banks warn that this would result in funds being diverted from the traditional financial system. But Wednesday’s findings could undermine a central argument of the banking groups: Even a total ban on stablecoin returns would only marginally increase lending.
Ban does little to protect loans
In other words, the report claimed that 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 out of banks and into digital dollars, thereby reducing the funds that banks use to make loans. Bank lobbyists have argued that community bankers will be particularly affected — an argument that has caught the attention of lawmakers such as Senators Thom Tillis, a Republican, and Angela Alsobrooks, a Democrat, who are seeking a legislative compromise that won’t harm Main Street institutions.
However, White House economists said the bankers’ argument ignores 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 bonds and ultimately redeposited at other banks, leaving overall deposit levels largely unchanged.
The report also addresses concerns that community banks could be disadvantaged as funds flow into Treasurys and larger institutions, finding that the impact on smaller lenders is limited. He estimates that community banks would account for just 24% of any additional lending in the event of a yield ban, or about $500 million, and points out that stablecoin activity is already concentrated among large financial institutions, suggesting that the real effect on smaller banks could be reduced even more.
“The answer lies not in the level of deposits, but in their composition,†the report explains. Under the current “plenty of reserves” regime, these moves between banks do not require lenders to reduce the size of their balance sheets.
Rather than disappearing from the banking sector, a large part of the funds supporting stablecoins are recycled through it. When issuers invest reserves in Treasury bills or similar instruments, these funds are typically redeposited elsewhere in the banking system, thereby preserving the overall level of deposits even if some banks experience capital outflows.
Only a small portion of stablecoin reserves, estimated at around 12% based on the report, are held in forms that can actually restrict lending. Even then, the effect is largely mitigated by bank reserve requirements and liquidity buffers, which absorb much of the potential impact before it reaches borrowers.
The result is a multi-step mitigation 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 stablecoin yields pose a particular threat to community banks. According to the report, smaller lenders would record just $500 million in additional lending under a yield ban, an increase of about 0.026%.
In other words, White House economists argue that the policy brings minimal benefits to the very institutions it is often intended to protect.
The report states that generating large lending effects hypothetically requires stacking several extreme conditions simultaneously: a stablecoin market several times larger than today’s, fully sidelined reserves for lending, and a policy shift of the Federal Reserve moving away from its current framework of abundant reserves. In the absence of these scenarios, the impact remains marginal, he said.
Costs fall on consumers
The report also strengthened the crypto industry’s arguments in terms of consumption. By eliminating yield, policymakers would effectively reduce returns on a growing class of dollar-denominated assets that compete with traditional deposits.
Economists have estimated that such a ban would result in a net welfare cost, with users forgoing returns without receiving significant improvements in credit availability in return. Rather than assuming that stablecoin returns are destabilizing, the report suggested 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 case remains unproven.
