Stablecoin rewards have low risk to the bank, and withholding yields will not result in any interest on bank lending, according to a report was released on April 8 by the White House Council of Economic Advisers (CEA).
The report, titled ‘Effects of Stablecoin Yield Prohibition on Bank Lending,’ comes amid a heated battle between traditional banks and crypto companies over whether stablecoins should be allowed to provide a yield to their owners.
Banks have said that the competition for stablecoins could lead to about $6 trillion in withdrawals from deposit accounts.
According to the CEA, banning interest on stablecoins will not increase bank lending while costing consumers about $800 million a year in lost profits.
Some estimates put the mortgage debt as high as $1.5 trillion. The CEA model says that the number is removed by several authorities.
According to the preliminary figures of the report, restricting stablecoin yields would increase bank lending by only $2.1 billion (0.02%). Community banks would benefit by about $500 million, or 0.026% of their loan book.
With a market size of about $300 billion against a $17.15 trillion deposit base, stablecoins represent only 1.7% of deposits. Alarmingly, about 88% of deposits (as seen with Circle’s $75 billion USDC) are in Treasury bills and repos.
The money goes back through the banks instead of disappearing, leaving all deposits unchanged, according to the CEA.
“The ban on yields will not protect bank lending, and will leave consumers benefiting from competitive returns in the stablecoin industry,” the CEA said.
This is a growing issue.
