The American Banking Association (ABA) is challenging a White House report that downplays the risks of yield-bearing stablecoins, warning that the growth of the sector could devastate community bank lending.
In a recent analysis published in the ABA Banking Journal, the trade group argued that current federal estimates fail to account for the systemic impact of stablecoin expansion. The group's critique follows an April 8 study by the Council of Economic Advisers (CEA) which suggested that banning stablecoin yields would only marginally affect US bank lending.
According to the CEA report, a prohibition on yields would boost US bank lending by just $2.1 billion, representing a mere 0.02% of the overall market. The White House study further argued that such a ban would cause an $800 million net welfare loss to consumers by denying them competitive returns.
ABA Chief Economist Sayee Srinivasan and Vice President Yikai Wang argue the CEA focus is too narrow. They contend the report examines the effects of a prohibition rather than the impact of yields as the market scales toward a projected $1 trillion to $2 trillion.
"Even if that estimate is directionally correct, it tells policymakers little about the question they really need answered: What is the lending and funding-cost impact of allowing yield as stablecoins grow from today’s scale to a much larger market?" the ABA stated.
Threat to local credit
The ABA warns that permitting yields could trigger massive deposit flight from regulated banks, particularly regional institutions holding under $10 billion in assets. These banks provide the primary source of credit for small businesses, housing, and agriculture.
The Independent Community Bankers of America (ICBA) estimated that yield-bearing stablecoins could siphon up to $1.3 trillion in deposits. Such a shift could potentially reduce community bank lending by $850 billion.
In a single state like Iowa, the ABA projected that lending reductions could range between $4.4 billion and $8.7 billion.
Stablecoin yields typically flow through centralized exchange programs, such as Coinbase's USDC Rewards, or decentralized finance protocols like Aave and Uniswap. These mechanisms currently offer returns between 3% and 8%.
The debate follows the July 2025 signing of the GENIUS Act. The FDIC is now proposing stricter rules to implement the Act, including potential bans on indirect yields through third parties and tighter reserve requirements.
