A new policy clash over stablecoin regulation has exposed a deeper divide between U.S. banking groups and government economists, with both sides presenting sharply different interpretations of how digital assets could reshape lending.
The White House Council of Economic Advisers (CEA) released a study on April 8 that examined the “Effects of Stablecoin Yield Prohibition on Bank Lending.” Its central conclusion drew attention across financial and crypto circles: banning yield on stablecoins would increase bank lending by just $2.1 billion, or roughly 0.02%. The report also estimated a net welfare cost of $800 million, arguing that consumers would lose access to competitive returns with little gain for the banking system.
That framing triggered immediate pushback from the American Bankers Association (ABA), which represents major institutions such as JPMorgan Chase, Goldman Sachs, and Citigroup. In a response authored by chief economist Sayee Srinivasan and vice president Yikai Wang, the group argued that the study focused on the wrong scenario.
“The live policy concern is not whether prohibiting yield on stablecoins would impact bank lending but whether allowing yield on stablecoins would encourage deposit outflows,” Srinivasan and Wang wrote, according to ABA materials.
New analysis from the ABA econ team - the CEA studied the wrong question on stablecoin ‘yield’ and community banks. The real question is whether allowing yield would encourage deposit flight and harm economic growth.
— American Bankers Association (@ABABankers) April 13, 2026
Read it here: https://t.co/z7IShwNaHH pic.twitter.com/OIjQvjtGij
Disagreement over the core policy question
The dispute centers less on the data itself and more on what policymakers should measure. The CEA modeled a system where stablecoins remain relatively small, with a market size of about $300 billion. Under those conditions, changes to yield policy appear marginal.
Banking advocates argue that such assumptions fail to reflect how the market could evolve. They point to projections that suggest stablecoins could scale to between $1 trillion and $2 trillion. In that environment, yield becomes a central feature rather than a secondary one.
“In a larger market, yield is not a minor product feature; it is the mechanism that would accelerate migration out of bank deposits,” the ABA economists stated.
The group also cited internal analysis suggesting that lending reductions could reach billions at the state level as deposits move away from smaller banks. According to WSJ, a separate Treasury estimate from April 2025 projected that widespread adoption of stablecoins could result in as much as $6.6 trillion in deposit outflows from the U.S. banking system.
Pressure on community banks
A key concern raised by banking representatives involves the uneven impact across the financial system. While the CEA report acknowledged that large banks would capture 76% of any additional lending under a yield ban, ABA economists stressed the vulnerability of community banks.
These smaller institutions rely heavily on local deposits to fund loans. When deposits leave, banks must secure alternative funding sources, often at higher cost. Options include wholesale borrowing or capital market funding, both of which reduce profitability and limit lending capacity.
Srinivasan and Wang emphasized that this adjustment cannot happen gradually. Banks must respond immediately to outflows, which puts pressure on their balance sheets and forces changes in lending behavior.
Even if total deposits remain stable across the system, the redistribution matters. Funds may shift from community banks to large institutions or into accounts tied to stablecoin issuers. That shift can reduce credit availability in regions that depend on relationship banking.
Legislative gridlock and industry divide
The debate has also slowed progress on crypto legislation. Lawmakers continue to negotiate provisions tied to stablecoin yield within broader efforts such as the Digital Asset Market Clarity Act. The issue has already delayed movement in the Senate, despite expectations of a committee review.
Earlier compromises attempted to draw a distinction between direct yield payments and reward-based structures. Some proposals would ban interest-like returns on stablecoin holdings while allowing incentives similar to credit card rewards. That approach has not resolved concerns from either side.
Crypto industry leaders, including Coinbase CEO Brian Armstrong, have argued that yield-bearing stablecoins could introduce long-needed competition. Armstrong has criticized traditional banks for offering near-zero interest on deposits, stating that digital assets could create a more level playing field.
Banks acknowledge that appeal. ABA representatives noted that households and businesses have clear financial incentives to move funds into higher-yielding alternatives. That dynamic sits at the center of the current policy tension.
Competing visions for stablecoins
At its core, the disagreement reflects two different views of what stablecoins should become. The CEA frames them as a payments innovation that can coexist with the banking system, especially under restrictions such as those introduced in the GENIUS Act, which requires full reserve backing and limits direct yield payments.
Banking groups see a more disruptive trajectory. They argue that if stablecoins evolve into yield-bearing products at scale, they could function as substitutes for traditional deposits without supporting the same credit creation role.
“The CEA paper minimizes the core risk by starting from the wrong question,” the ABA economists stated. “There is already ample evidence and analysis showing that a prohibition on yield for payment stablecoins is a prudent safeguard.”
The outcome of this debate will shape how lawmakers approach the next phase of crypto regulation. For now, both sides agree on one point: the stakes extend beyond digital assets and into the structure of the broader financial system.
Gunel Ismayilova
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