A new dispute has emerged between the American Bankers Association (ABA) and White House economists over the consequences of banning yield payments on payment stablecoins, with the focus shifting to the potential threat this measure poses to community banks.
White house study downplays deposit flight risk
On April 8, the Council of Economic Advisers (CEA) released a 21-page paper analyzing the effects of prohibiting payment stablecoins from offering yield, as required by the upcoming GENIUS Act in 2025.
The CEA modeled a scenario in which yield-paying stablecoins are banned, estimating that such a move would increase bank lending by $2.1 billion, representing a minimal 0.02% boost to a $12 trillion loan portfolio.
The report calculated that consumers would forgo $800 million in returns, and determined that for every dollar gained in lower borrowing costs, $6.60 would be lost from reduced yield—indicating lost returns far outweigh any benefits.
White House economists concluded that, given the small financial impact, stablecoin yields are not likely to cause the large-scale outflow of deposits from banks that some academic studies have anticipated.
Stablecoins are a class of cryptoassets that maintain a constant value by holding reserves in assets like Treasury bills or cash. They have become central to payments and trading in digital finance markets worldwide.
ABA highlights community bank dangers in future scenarios
In response, the ABA, a major U.S. banking trade association representing banks of all sizes, challenged the report’s premise and argued that the greater risk comes from what would happen if yield payments on stablecoins were allowed to scale with market growth.
Chief economist Sayee Srinivasan and vice president Yikai Wang warned that competitive yields offered by payment stablecoins—if permitted—could pull deposits away from community banks, especially as the stablecoins market could reach $1–2 trillion.
The ABA team emphasized that in such a scenario, local deposit bases could shrink, forcing community banks to seek more expensive wholesale funding or raise their offered deposit rates, potentially resulting in billions of dollars in reduced lending capacity for small businesses and households.
The CEA report stated that even when stablecoins attract cash from depositors, most reserves end up reinvested into the financial system via Treasuries and similar instruments, creating an overall “reshuffling” of funding with little effect on aggregate bank deposits.
However, ABA leaders warned this view overlooks the pressure it creates for individual banks, which must cover outflows by increasing their cost of funds—directly impacting their ability to support local economies.
The debate overlaps with ongoing legislative efforts. The GENIUS Act will enforce a federal standard on payment stablecoins and bar issuers from paying interest, but leaves a loophole for third-party platforms like Coinbase’s USDC rewards program, which mirrors high-yield savings returns by sharing reserve income with users.
Some versions of the proposed CLARITY Act aim to close this channel and prohibit intermediaries from offering yield, which could further restrict stablecoin offerings in the United States.
As both sides weigh in, concerns remain over whether allowing yield on stablecoins would lead to a form of narrow banking that disrupts the traditional funding model for community institutions, while the White House sees little immediate threat to system-wide lending but points to unresolved questions about global capital flows and U.S. borrowing costs.
