WASHINGTON—The American Bankers Association is pushing back against a recent White House analysis of stablecoin policy, arguing that federal economists understated the potential risks to community banks and local lending.
In a response published in its Banking Journal, the ABA said an April 8 white paper from the Council of Economic Advisers “studied the wrong question” by focusing on the impact of banning yield on payment stablecoins rather than examining the effects of allowing such yield to expand.
The White House report concluded that prohibiting stablecoin yield would have only a minimal effect on bank lending, estimating an increase of about $2.1 billion, or roughly 0.02%, with limited gains for community banks.
But ABA economists argued that framing overlooks what they described as the central policy concern: whether yield-bearing stablecoins could draw deposits away from traditional banks—particularly smaller institutions that rely on local deposits to fund loans.
‘The Contested Scenario’
“The contested scenario is whether allowing yield on payment stablecoins will accelerate deposit migration — especially from community banks — raising funding costs and reducing local credit,” the ABA wrote.
The group said the CEA analysis relies on current market conditions, with the stablecoin sector at roughly $300 billion, and does not adequately account for the potential growth of the market to $1 trillion or more. In such a scenario, yield would become a key driver of consumer behavior rather than a minor feature, the ABA said.
The ABA also disputed the White House suggestion that deposit shifts within the financial system would have limited economic impact. Even if total deposits remain stable, the association said, a migration from community banks to larger institutions or stablecoin issuers could reduce credit availability in local markets that depend on relationship-based lending.
Additional Warning
In addition, the group warned that stablecoins could function similarly to “narrow banks,” which hold reserves but do not engage in traditional lending, potentially weakening the banking system’s role in credit intermediation.
The debate over stablecoin yield has become a central issue in ongoing discussions in Washington over digital asset legislation, including proposals to close perceived loopholes that could allow indirect yield payments through affiliates or third-party platforms.
The ABA reiterated its position that prohibiting yield on payment stablecoins is a “prudent safeguard,” arguing such limits would allow the technology to serve as a payments tool without becoming a substitute for insured bank deposits.
