White House economists denied the claims stablecoin reward it would destroy the traditional banking system. A new report by the Council of Economic Advisers says that banning stablecoin yields may have a limited effect on bank lending, meaning that fears from the banking sector may persist.
Unbankable Stablecoin Rewards
According to the White House report head “Effects of Stablecoin Yield Prohibition on Bank Lending,” banning stablecoin yields may have limited effects on banks.
It would increase lending by just 0.02%, or about $2.1 billion, which is less than all banks.
The analysis also found that this increase will benefit the big banks. About 76% of the additional loans come from large institutions, while community banks will account for the remaining 24%.
In dollar terms, small banks would add about $500 million in loans, which is only going up 0.026%.
Overall, the findings suggest that stablecoin rewards are unlikely to drain deposits from banks, easing major concerns.
Report Counters Banking Industry Warnings
Some banking groups have previously warned that stablecoins offering rewards could lead to massive outflows. One estimate suggested that banks could lose up to $1.3 trillion in deposits and $850 billion in loans.
However, White House economists said this does not seem unlikely. Even in the worst case scenario, the country showed an additional lending to the bank that reached $531 billion, equivalent to an increase of 4.4%. But this would require the stablecoin market to grow to seven times its current size, including significant changes in the financial system.
The report also stated that this is not likely to happen, which makes the risk of banks low.
Consumer Benefits May Be Lost With Prohibition
Economists have also warned that banning stablecoin rewards could harm users. Stablecoin programs often offer competitive benefits compared to traditional deposits.
For example, some platforms currently offer around 3.5% rewards for stablecoin banking. Eliminating such incentives would reduce competition and reduce consumer choice.
The report said that restricting productivity would not protect bank lending and take away the benefits that users can get.
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