ABA: Stablecoin yields threaten community bank deposits

The American Bankers Association criticized a White House economic analysis, arguing the paper understates the risk that allowing yield on stablecoins would draw deposits away from community banks and toward larger institutions.

The White House Council of Economic Advisers published a paper last week titled “Effects of Stablecoin Yield Prohibition on Bank Lending.” The report found that a ban on stablecoin yields would increase bank lending by about $2.1 billion under a baseline scenario, a net rise of roughly 0.02%.

ABA chief economist Sayee Srinivasan and vice president Yikai Wang responded in a Monday statement that the White House framed the wrong policy question. They urged attention to whether permitting yields would trigger deposit flows from smaller banks to larger firms, even if total deposits in the banking system remained unchanged.

The ABA warned those reallocations could raise funding costs for community banks and reduce local lending. The association’s researchers noted that some smaller banks might lack the balance sheet flexibility to withstand such outflows without turning to higher-cost wholesale borrowing. The ABA also described stablecoin rewards as more attractive to households and businesses, creating a clear incentive to move funds into higher-yield digital assets.

The debate is unfolding as lawmakers consider a Senate bill to regulate stablecoins. Industry representatives and banking groups are negotiating language before a possible markup, with a central dispute over whether to ban yield payments on stablecoins.

A Treasury report from April 2025 estimated that extensive stablecoin adoption could produce up to $6.6 trillion in deposit outflows from the U.S. banking system, a scenario that would change funding dynamics across institutions of all sizes.

Supporters of allowing yields argue market returns would increase competition and push banks to raise deposit rates. Coinbase CEO Brian Armstrong has criticized banks’ low deposit rates and said stablecoin yields would pressure banks to offer higher returns.

Lawmakers must weigh consumer demand for higher-yield digital products against the potential funding and liquidity stresses on community banks. Negotiations on the Senate measure continue, with federal agencies, banking trade groups and crypto firms pressing different approaches to balance consumer options and financial stability.