Not A Threat: Stablecoin Yield Won’t Harm Banks, White House Economists Say

In a positive development for the crypto industry, a recent study by White House economists affirmed that stablecoin yield won’t harm community banks, and its prohibition won’t have a meaningful impact on overall lending in the banking system.

For context, the landmark crypto legislation, the GENIUS Act, requires issuers to maintain reserves backing outstanding stablecoins on a one-to-one basis and to hold these reserves in certain assets, including US dollars, Federal Reserve notes, and short-term US Treasuries.

While some analysts estimate that the effect of lending in the trillions of dollars, the CEA report found that eliminating stablecoin yield would only boost bank lending by $2.1 billion, equivalent to a 0.02% increase.

Large banks would conduct 76% of this additional lending, while community banks—which have assets below $10 billion—would lend the remaining 24%. In our baseline, that adds up to $500 million in additional lending from community banks, meaning their lending rising by 0.026%.

As they noted, even under the worst-case assumptions, the CEA’s model produced only $521 billion in additional aggregate lending, corresponding to a 4.4% increase in bank loans as of Q4 2025.

“Even under those implausible conditions, community bank lending only rises by $129 billion, corresponding to an increase of 6.7%,” the White House economists emphasized, concluding that prohibiting yield would have only a moderate impact on overall lending in the banking system.

The conditions for finding a positive welfare effect from prohibiting yield are similarly implausible. In short, a yield prohibition would do very little to protect bank lending, while forgoing the consumer benefits of competitive returns on stablecoin holdings.

During its Q4 earnings call, the executive stated that up to $6 trillion in deposits, roughly 30% to 35% of all US commercial bank deposits, could flow out of the banking system and into the stablecoin sector, citing Treasury Department studies.

Earlier this year, the Independent Community Bankers of America affirmed that offering interest on payment stablecoins could drain community bank deposits and limit credit availability for local economies.

The group asserted that allowing digital asset entities to pay interest, yield, or “rewards” on payment stablecoins would significantly reduce community banks’ ability to support local lending needs, potentially losing $1.3 trillion in deposits and $850 billion in loans.

“The banks, however, can’t afford regulatory uncertainty. Their general counselors are telling their boards, you can’t invest billions of dollars in this (…) unless you’ve got regulatory certainty. (…) The banks need this clarity because they need to build this. They need to be in the forefront, not in the rear guard of this innovation,” he stated.