A White House report from the Council of Economic Advisers (CEA) concludes that stablecoin rewards pose minimal risk to the banking sector. Prohibiting these yields is unlikely to significantly increase bank lending.
The report, 'Effects of Stablecoin Yield Prohibition on Bank Lending,' addresses the ongoing debate over whether stablecoins should be permitted to offer yields to holders.
While banks have expressed concerns that competitive stablecoin returns could lead to substantial deposit withdrawals, the CEA's analysis indicates otherwise. Banning interest payments on stablecoins would result in a negligible increase in bank lending, estimated at just $2.1 billion (0.02% of total lending). Consumers, however, would lose an estimated $800 million annually in foregone benefits.
With stablecoins representing only 1.7% of the total deposit base, and approximately 88% of their reserves held in Treasury bills and repos, these funds recirculate within the banking system, largely maintaining total deposits. The CEA highlights that a yield prohibition would do little to protect bank lending while eliminating consumer benefits from competitive returns on stablecoin holdings.