The post White House Economists Say Stablecoin Rewards Won’t Harm Banks appeared first on Coinpedia Fintech News
White House economists have pushed back against claims that stablecoin rewards could damage the traditional banking system. A new report from the Council of Economic Advisers says banning stablecoin yields would have only a minimal impact on bank lending, suggesting fears from banking groups may be overstated.
Stablecoin Rewards Unlikely to Drain Bank Deposits
According to a White House report titled “Effects of Stablecoin Yield Prohibition on Bank Lending,” banning rewards on stablecoin balances would have only a small impact on banks.
It would increase lending by just 0.02%, or about $2.1 billion, which is minimal compared to the overall banking system.
The analysis also found that most of this increase would benefit large banks. About 76% of the additional lending would come from major institutions, while community banks would account for the remaining 24%.
In dollar terms, smaller banks would add around $500 million in loans, representing only a 0.026% rise.
Overall, the findings suggest that stablecoin rewards are unlikely to significantly drain deposits from banks, easing major concerns.
Report Counters Banking Industry Warnings
Some banking groups previously warned that stablecoins offering rewards could lead to major deposit outflows. One estimate suggested banks could lose up to $1.3 trillion in deposits and $850 billion in loans.
However, the White House economists said such outcomes appear unlikely. Even under extreme assumptions, the model showed total additional bank lending reaching $531 billion, equal to about a 4.4% increase. But this scenario would require the stablecoin market to grow to six times its current size, alongside major changes to monetary policy.
The report noted that these conditions are unrealistic, making the risk to banks limited.
Consumer Benefits Could Be Lost With a Ban
Economists also warned that banning stablecoin rewards could harm users. Stablecoin programs often offer competitive returns compared to traditional bank deposits.
For example, some platforms currently offer around 3.5% rewards on stablecoin balances. Removing such incentives could reduce competition and limit consumer choice.
The report concluded that prohibiting yields would do little to protect bank lending while eliminating potential benefits for users.