Bank Lobby Fires Back White House Over Stablecoin Study

The bank lobby fires back white house over stablecoin study, warning that the White House’s latest stablecoin study is asking the wrong question and underestimating the threat to community banks.

Stablecoin Study and Community Bank Threat

The American Bankers Association (ABA) is warning that the White House’s latest stablecoin study is asking the wrong question and underestimating the threat to community banks. The study, released by the Council of Economic Advisers, finds that banning yield on payment stablecoins would raise bank lending by only about $2.1 billion, or roughly 0.02% of a $12 trillion loan book.

Impact on Consumers and Banks

The report also estimates that consumers would forgo around $800 million in returns, producing a cost-benefit ratio of 6.6, where lost yield outweighs gains from slightly lower borrowing costs. However, the ABA argues that the study framed “the wrong question” by focusing on the effect of a prohibition rather than the impact of allowing yield as the market grows.

Yield-Paying Coins and Deposit Migration

The ABA chief economist Sayee Srinivasan and banking research VP Yikai Wang warned that yield-paying payment stablecoins could accelerate deposit migration out of insured accounts, especially at community banks. Their analysis points to a future market of $1 to $2 trillion in payment stablecoins, where competitive yields on tokens backed by Treasuries and other safe assets become a direct rival to local deposits.

• $1 to $2 trillion market size for payment stablecoins
• 0.02% increase in bank lending if yield is banned
• $800 million in lost returns for consumers

Deposit Stablecoin Reshuffling and Community Bank Pressure

The White House paper stresses that when consumers move cash into stablecoins, issuers reinvest reserves into Treasury bills, repos, and money-market funds, sending most of the money back into the banking system. However, the ABA response counters that this misses what happens at individual institutions when deposits walk out the door, forcing community banks to replace funding with higher-cost wholesale borrowing or by raising deposit rates.

Key Takeaways

• The bank lobby is warning that the White House’s stablecoin study underestimates the threat to community banks.
• Yield-paying payment stablecoins could accelerate deposit migration out of insured accounts.
• The ABA is arguing that the study framed “the wrong question” by focusing on the effect of a prohibition rather than the impact of allowing yield as the market grows.
• Policymakers should treat a prohibition on yield as a “prudent safeguard” that keeps stablecoins in a payments role.

Frequently Asked Questions

What is the main concern of the bank lobby regarding the stablecoin study?

The bank lobby is concerned that the study underestimates the threat to community banks and ignores the impact of allowing yield as the market grows.

How could yield-paying payment stablecoins affect community banks?

Yield-paying payment stablecoins could accelerate deposit migration out of insured accounts, forcing community banks to replace funding with higher-cost wholesale borrowing or by raising deposit rates.