White House economists have concluded that prohibiting cryptocurrency firms from offering rewards on stablecoins would have a negligible effect on community banks, directly challenging alarming projections put forward by the traditional banking sector. The Council of Economic Advisers released its analysis on Tuesday, entering a heated policy debate between crypto advocates and established financial institutions. The report finds that a ban on stablecoin yield would increase overall bank lending by approximately $2.1 billion while imposing a net welfare cost of $800 million.
Community banks, which have been at the center of the debate, would account for only 24% of that additional lending — roughly $500 million, or a 0.026% increase on current figures. Even under the most extreme assumptions modeled by the Council, including a scenario requiring the stablecoin market to grow sixfold, community banks would see a lending increase of just 6.7%, or $129 billion. The report’s authors noted that stacking every worst-case assumption was necessary to arrive at even those more dramatic figures.
The Council’s conclusions stand in sharp contrast to warnings issued by the Independent Community Bankers of America, which has cautioned that small banks could lose $1.3 trillion in deposits and $850 billion in loans if legislation permitting yield on stablecoins is enacted. The trade group argues that unrestricted stablecoin yield poses a direct threat to the deposit base and lending capacity of smaller institutions, particularly those serving rural communities. The White House economists dismissed such projections as implausible under realistic market conditions.
In their report, the Council wrote 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.” They also stated that “the conditions for finding a positive welfare effect from prohibiting yield are similarly implausible.” The analysis frames the potential ban as a measure that would harm consumers without delivering meaningful protection to the banking sector.
The debate is unfolding against the backdrop of the Clarity Act, a piece of legislation that would either prohibit third-party stablecoin rewards or establish a legal framework for them. The bill has stalled in Congress for months amid intense lobbying from both the banking and crypto industries. Coinbase, which currently offers a 3.5% annual percentage yield on USDC balances for certain customers, has been among the companies pushing for regulatory clarity on the matter.
The White House has taken an active role in brokering 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 ongoing legislative stalemate. Lawmakers have signaled that crypto market structure legislation could face a key vote in April, with a May deadline for passage being discussed on Capitol Hill.
The broader stablecoin yield debate has grown more urgent as crypto firms increasingly compete with traditional banks for customers and deposits. At the same time, traditional banks are moving into crypto custody services while simultaneously lobbying against yield-bearing stablecoin products, reflecting the complex and sometimes contradictory positions institutions are navigating as digital assets become more mainstream.
Originally reported by Decrypt.
