White House Council of Economic Advisers: Stablecoin Yield Doesn’t Threaten Small Banks

In brief

• White House economists calculated that prohibiting stablecoin yield would increase bank lending by only 0.02%, or $2.1 billion.
• The Council of Economic Advisers report directly contradicts banking industry warnings of massive deposit flight.
• The intervention could influence stalled Congressional legislation on stablecoin regulation.

White House economists have concluded that banning cryptocurrency firms from offering stablecoin rewards would have minimal impact on community banks, boosting their lending by just 0.026% despite industry warnings of catastrophic deposit losses.

The Council of Economic Advisers released an analysis Tuesday weighing in on the heated debate between traditional banking and advocates of crypto yield products.

According to their economic modeling, banning stablecoin rewards would boost bank lending by $2.1 billion at a net welfare cost of $800 million, an increase in lending of 0.02%.

Community banks would conduct just 24% of that additional lending, amounting to $500 million—a 0.026% increase on current figures.

Even “stacking every worst-case assumption,” requiring the stablecoin market to grow sixfold, the report’s authors noted that community banks would see only a 6.7% lending increase, or $129 billion.

The Council’s view contrasts starkly with banking industry rhetoric, with the Independent Community Bankers of America warning that small banks risk losing $1.3 trillion in deposits and $850 billion in loans if legislation enabling yield on stablecoins is passed.

“The conditions for finding a positive welfare effect from prohibiting yield are similarly implausible,” they wrote, adding that a block on stablecoin yield would “do very little to protect bank lending, while forgoing the consumer benefits of competitive returns on stablecoin holdings.”

The report comes as the Clarity Act, which would either ban third-party stablecoin rewards or establish their legal framework, has languished in Congress for months amid fierce lobbying from both the banking and crypto sectors. Companies like Coinbase, which currently offers 3.5% annual percentage yield on USDC balances for certain customers, have pushed for regulatory clarity while traditional banks have sought restrictions.

The White House has actively brokered negotiations on stablecoin policy in recent months as the financial services industry remains divided. Banking trade groups maintain that unrestricted stablecoin yield threatens their deposit base and lending capacity, particularly for smaller institutions serving rural communities.

The stablecoin yield debate has intensified as crypto firms increasingly compete with traditional banking services. Senator Cynthia Lummis urged banks to "embrace" stablecoins in February amid the stalemate over the Clarity Act. Lawmakers have indicated that crypto market structure legislation faces a key vote in April with a May deadline for passage. Meanwhile, traditional banks are moving into crypto custody services while simultaneously lobbying against yield-bearing stablecoin products.