Stablecoin Yield Ban Would Boost Bank Lending by Just 0.02%: White House

The White House said Tuesday that banning yield on stablecoins would do little to increase bank lending, pushing back against estimates that stablecoin rewards could result in large amounts of deposits leaving the traditional banking system.

In an update to an April analysis by the Council of Economic Advisers (CEA), the White House said eliminating stablecoin yield would increase bank lending by about $2.1 billion under its baseline assumptions. That represents just 0.02% of outstanding bank loans.

Community banks would account for roughly $500 million of the additional lending, or about 0.03% of their loan books, according to the analysis.

The CEA estimated that the policy would also carry a net welfare cost of about $800 million a year. Households would lose some of the benefits associated with earning competitive returns on stablecoin holdings, while the increase in lending would be relatively small.

The White House also addressed scenarios in which the stablecoin market expands significantly. If stablecoins reached 10% of bank deposits, compared with about 1.7% today, banning yield would increase bank lending by between $11 billion and $14 billion under several assumptions.

"Given the 10 percent share, CEA estimates the banning yield would increase bank lending by $11 to $14 billion, roughly 0.1% of outstanding bank loans," the White House wrote.

The largest lending increase in the CEA's model comes from stacking several extreme assumptions. In that scenario, the stablecoin market grows to about $1.7 trillion, issuers hold all reserves as cash, households are highly sensitive to yield, and the Federal Reserve moves away from its current ample-reserves framework.

Under those conditions, the White House estimates that a yield ban could increase bank lending by $531 billion, or 4.4% of total loans. Community bank lending would rise by $129 billion. The White House said those assumptions are unlikely to occur together.

The analysis comes after eight major banking trade associations told Senate leaders on Monday that stablecoin rewards could encourage deposit flight, reducing banks' ability to fund lending to consumers and businesses.