The American Bankers Association is warning that the White House’s latest stablecoin study is asking the wrong question and underestimating the threat to community banks.
On April 8, the Council of Economic Advisers released a 21‑page paper modeling what happens if payment stablecoin issuers are barred from paying yield. The analysis, tied to the 2025 GENIUS Act’s prohibition on interest for payment stablecoins, finds that banning yield would raise bank lending by only about 2.1 billion dollars, or roughly 0.02% of a 12 trillion dollar loan book.
The report also estimates that consumers would forgo around 800 million dollars in returns, producing a cost‑benefit ratio of 6.6 in which lost yield outweighs gains from slightly lower borrowing costs.
In short, White House economists concluded that stablecoin yield, under current conditions, is unlikely to trigger the sweeping deposit flight some academic studies had projected.
ABA: the real risk is yield‑paying coins at scale
The American Bankers Association fired back today, arguing the CEA framed “the wrong question” by focusing on the effect of a prohibition rather than the impact of allowing yield as the market grows.
ABA chief economist Sayee Srinivasan and banking research VP Yikai Wang warned that yield‑paying payment stablecoins could accelerate deposit migration out of insured accounts, especially at community banks.
Their analysis points to a future market of 1 to 2 trillion dollars in payment stablecoins, where competitive yields on tokens backed by Treasuries and other safe assets become a direct rival to local deposits. In that scenario, they say, even single states could see multi‑billion‑dollar contractions in bank lending as cheap funding drains away.
Deposit stablecoin reshuffling vs. community bank pressure
The White House paper stresses that when consumers move cash into stablecoins, issuers reinvest reserves into Treasury bills, repos, and money‑market funds, sending most of the money back into the banking system.
That “reshuffling” means aggregate deposits stay largely flat, and, with banks currently holding over 1.1 trillion dollars in excess liquidity, the model finds little system‑wide constraint on lending.
The ABA response counters that this misses what happens at individual institutions when deposits walk out the door, forcing community banks to replace funding with higher‑cost wholesale borrowing or by raising deposit rates.
Those higher funding costs, they argue, translate into less local credit and higher loan rates for households, farmers, and small businesses that rely on relationship lenders.
The debate lands on top of the GENIUS Act, the 2025 law that created the first federal regime for payment stablecoins and hard‑coded a ban on issuers paying yield to holders.
That ban does not extend to third‑party platforms, leaving room for arrangements such as Coinbase’s USDC rewards, which share reserve income with users at rates similar to high‑yield savings accounts.
Some versions of the proposed CLARITY Act would close this channel by barring intermediaries from passing yield through, a move the CEA notes but does not fully evaluate. ABA’s authors say policymakers should treat a prohibition on yield as a “prudent safeguard” that keeps stablecoins in a payments role instead of letting them evolve into a high‑yield substitute for insured deposits.
Both sides touch on a deeper question: whether yield‑bearing stablecoins effectively create a form of narrow banking that siphons funds out of traditional credit intermediation. The CEA frames narrow‑bank‑like structures as potentially safer for payments, assuming reserves stay in Treasuries and other ultra‑safe assets, while downplaying near‑term lending losses.
The ABA warns that pushing activity into such models without a plan to preserve community‑bank lending ignores Congress’s reluctance to endorse central bank digital currencies for similar reasons.
With more than 80% of stablecoin activity already offshore and issuers holding Treasury portfolios larger than some sovereigns, the White House also flags global demand and U.S. borrowing costs as an underexplored part of the yield debate.