White House economists say stablecoin yields are fine. Banks are having none of it

A trade association for US banks dismissed a recent White House report that concluded banks would see little benefit from a ban on yield-bearing stablecoins.

That report “studied the wrong question” and reached a misleading conclusion, Sayee Srinivasan and Yikai Wang, respectively the chief economist and banking research VP at the American Banking Association, wrote in an essay published by the organisation’s in-house magazine, the ABA Banking Journal.

“The live policy concern is not whether prohibiting yield on payment stablecoins would impact bank lending,” the executives wrote. “It is whether allowing yield on payment stablecoins would encourage deposit flight — especially from community banks.”

Clarity Act quagmire 

It is the latest salvo in a long-running battle over stablecoin yield. That row has threatened to derail negotiations over the Clarity Act, a bill that would create a long-sought regulatory framework for cryptocurrencies in the US.

The stakes couldn’t be higher. Not only would the bill provide the crypto industry with some much needed clarity, the passing of the bill is also seen as a key trigger for Bitcoin’s next rally.

Bitcoin and other top cryptocurrencies are trading at roughly 40% below the record highs they hit last year.

Some stablecoin issuers have paid customers yield on their digital dollars. But last year’s stablecoin legislation, the Genius Act, banned the practice. Banks feared customers would abandon traditional checking and savings accounts for stablecoins, which often pay depositors substantially higher interest rates.

It was unclear, however, whether the law banned third-parties, such as crypto exchanges, from paying interest on customers’ stablecoin holdings.

Banks have lobbied lawmakers to include language in the Clarity Act that would close this supposed loophole. Crypto companies, in turn, have slammed banks for attempting to relitigate components of a bill months after it was signed into law.

As a result, the Clarity Act has been mired in legislative limbo for months. And the window to pass it is rapidly closing, with Democrats expected to reclaim the House in November and put crypto policy on the backburner.

White House economists’ report

The banking lobby’s latest missive comes just days after White House economists said that banks would only get a boost of $2.1 billion — or 0.02% — if lawmakers banned stablecoin rewards.

“In short, a yield prohibition would do very little to protect bank lending, while forgoing the consumer benefits of competitive returns on stablecoin holdings,” the report read.

It also found little impact on the smaller banks found outside major metro areas.

“Altogether, the empirical evidence suggests that our own model overstates an already small effect of stablecoin yield on community banks,” the report adds.

The industry quickly jumped on the news.

“We now know why stablecoin rewards critics wanted it suppressed," Paul Grewal, chief legal officer at Coinbase, said on X. "The most respected economists in the government found nothing that shows rewards cause deposit 'flight.' Facts are hard sometimes.”

But the bank lobby said the Council of Economic Advisers was asking the wrong question by focusing on the effect of a yield prohibition, rather than the consequences of allowing yield.

“By focusing on the effects of a prohibition, the CEA paper risks creating a misleading sense of safety by avoiding the much more consequential scenario: yield-paying payment stablecoins scaling quickly,” the ABA says.

And, contrary to the White House report, allowing yield-bearing stablecoins would indeed have a disproportionate impact on community banks, according to the ABA.

“This is not primarily a question of whether the system has enough reserves,” the executives wrote. “It is a question of whether smaller banks have the balance sheet flexibility to absorb outflows without cutting back credit.”

US President Donald Trump has previously sided with the crypto industry in the yield debate.

“Americans should earn more money on their money,” Trump wrote on his social media platform, Truth Social.

“The banks are hitting record profits, and we are not going to allow them to undermine our powerful crypto agenda that will end up going to China, and other countries if we don’t get the Clarity Act taken care of.”

Treasury Secretary Scott Bessent, Commodity Futures Trading Commission Chair Mike Selig, Securities and Exchange Commission Chair Paul Atkins, and former White House Crypto Czar David sacks all called for the passing of the Clarity Act earlier in April.

Despite the banking lobby’s latest attack, White House crypto adviser Patrick Witt struck a bullish note when discussing the Clarity Act’s future this week.

He told CoinDesk on Monday that senators squabbling over the bill seem to have reached a compromise over key issues over stablecoin yields.

He also said the lawmakers have made “considerable progress” on other key issues.

Aleks Gilbert is DL News’ New York-based DeFi correspondent. Have a tip? You can reach him at aleks@dlnews.com.