Banks push back on White House stablecoin study

Banks are pushing back on a new White House report that says banning stablecoin yield would do little to protect bank lending, reopening one of the sharpest fights in Washington’s crypto policy debate. In an April 8 paper, the White House Council of Economic Advisers said a yield ban would raise bank lending by only about $2.1 billion, or 0.02%, while imposing an estimated $800 million cost on users who would lose access to better returns.

The banking industry responded quickly. In a rebuttal published on April 13, the American Bankers Association said the administration had asked the wrong question by focusing on the effect of a ban at today’s market size instead of asking what happens if yield-bearing stablecoins grow much larger and pull more funding out of banks.

The fight centres on competition for deposits

The White House paper argues that the effect on lending would be limited because stablecoin reserves would still move through the financial system, reducing any hit to credit creation even if users shift money out of deposits. It said large banks would account for about 76% of the extra lending under a ban, while community banks would make up the other 24%, or roughly $500 million.

Banks say that misses the real issue. The ABA argues policymakers should be asking how much lending capacity and funding stability banks could lose if payment stablecoins are allowed to offer rewards through affiliated exchanges or other third parties as the market grows. In a separate April 8 item, ABA Banking Journal said Treasury had previously estimated that as much as $6.6 trillion in deposits could be at risk.

The dispute is slowly broadening crypto policy

This is not just a technical fight between economists. In March, the market structure bill stalled after banks objected to language they said could leave room for crypto firms to offer yield-bearing products and other rewards that compete with deposits.

Earlier on, the White House was trying to broker a compromise between bank groups and crypto companies after the issue became a sticking point.

The next question is whether Congress closes the gap

The White House study gives crypto firms new support for keeping more room to offer stablecoin rewards. Banks are trying to push the debate back to what happens if those products become mainstream alternatives to checking and savings accounts.

That leaves Congress with a familiar choice. It can treat stablecoin yield as a limited consumer feature with modest effects on banks, or as a future threat to deposits that needs tighter guardrails before the market reaches that point.