A White House economic report concludes that prohibiting yield on stablecoins would have minimal impact on community bank lending, increasing it by only 0.026%. The analysis directly challenges banking industry warnings of catastrophic deposit flight and could influence stalled Congressional legislation on stablecoin regulation.
White House economists have determined that banning cryptocurrency firms from offering stablecoin rewards would have a negligible effect on community banks. According to their analysis, such a prohibition would boost overall bank lending by just $2.1 billion, an increase of 0.02%. Community banks would account for only 24% of that additional lending, amounting to a $500 million increase, or 0.026% of their current lending figures.
The Council of Economic Advisers’ report starkly contradicts warnings from the banking industry. The Independent Community Bankers of America has warned that small banks risk losing $1.3 trillion in deposits and $850 billion in loans if legislation enabling yield on stablecoins is passed. The White House economists stated that the conditions for finding a positive welfare effect from prohibiting yield are “implausible,” and such a ban would “do very little to protect bank lending, while forgoing the consumer benefits of competitive returns on stablecoin holdings.”
This intervention could influence stalled Congressional legislation on stablecoin regulation, known as the Clarity Act. The report comes as the act has languished in Congress amid fierce lobbying from both the banking and crypto sectors. Companies like Coinbase, which offers a 3.5% annual percentage yield on USDC balances for some 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. Senator Cynthia Lummis urged banks to “embrace” stablecoins in February amid the stalemate. Lawmakers have indicated that crypto market structure legislation faces a key vote in April with a May deadline for passage, while traditional banks are moving into crypto custody services while simultaneously lobbying against yield-bearing stablecoin products.
