The American Bankers Association directly challenged a recent White House Council of Economic Advisers report on payment stablecoins, claiming it misses key risks tied to allowing yield. The CEA paper estimated banning yield could boost bank lending by roughly $1.2 billion, but ABA called that figure small relative to typical quarterly lending swings. More critically, the CEA analysis assumed a current stablecoin market size of about $300 billion, ignoring projections of a $1 trillion to $2 trillion market where yield becomes a major driver of deposit migration.
Narrow framing distorts policy debate
ABA argued that the CEA framed the prohibition of yield as the intervention, narrowing debate and aligning with industry narratives that downplay broader risks. The association said the real question is what happens if yield is allowed. Researchers across studies agree that yield-paying stablecoins increase incentives to shift funds from bank deposits. While total deposits might stay stable, flows move between institutions — small banks often lose to larger entities or stablecoin reserves.
Community banks face outsized hit
Community banks depend on local deposits to extend credit. When deposits leave, so does lending capacity. ABA flagged potential state-level effects: in Iowa, for example, lending could drop by $4.4 billion to $8.7 billion as stablecoins grow. Banks forced to replace lost funding must turn to higher-cost sources like wholesale borrowing or capital market funding. Alternatively, they raise deposit rates to retain customers. Both routes increase funding costs, which can shrink lending or raise borrowing costs for households and small businesses.
Credit reshuffling carries real costs
The CEA paper suggested deposits could be reshuffled across the system without net harm. But ABA countered that even reshuffling reduces credit where relationship banking matters most — in local communities. The association urged policymakers to examine the full consequences of allowing stablecoin yield rather than focusing solely on banning it, warning that a larger stablecoin market would amplify deposit outflows and tighten credit supply for Main Street.