White House economists have concluded that prohibiting cryptocurrency firms from offering stablecoin rewards would have a negligible impact on community banks. A new analysis from the Council of Economic Advisers indicates that such a ban would boost bank lending by only 0.02%, amounting to $2.1 billion. This finding directly contradicts warnings from the banking industry, which had predicted massive deposit flight and significant threats to lending capacity for smaller institutions.
The report's economic modeling suggests that banning stablecoin rewards would increase overall lending by $2.1 billion, with community banks conducting just 24% of that additional lending. Even under a sixfold increase in the stablecoin market, the report's authors found that community banks would see only a 6.7% lending increase. The Council's view contrasts sharply with rhetoric from groups like the Independent Community Bankers of America, which warned of potential losses of $1.3 trillion in deposits and $850 billion in loans if legislation enabling yield on stablecoins were passed.
The Council's analysis, released Tuesday, weighs in on the ongoing debate between traditional banking and advocates of crypto yield products. The report suggests that a ban on stablecoin yield would "do very little to protect bank lending, while forgoing the consumer benefits of competitive returns on stablecoin holdings." This intervention could influence stalled Congressional legislation on stablecoin regulation, such as the Clarity Act, which aims to either ban or establish a legal framework for third-party stablecoin rewards.