The American Bankers Association (ABA) says the White House is looking at the stablecoin yield debate from the wrong angle.
In a note published on Monday, ABA economists argued that the White House study focused on a narrow question. According to the bankers group, the White House Council of Economic Advisers (CEA) looked at whether banning yield on payment stablecoins would change bank lending.
But ABA economists argued that this does not get to the heart of the issue.
They said the bigger policy concern is what happens if yield-paying stablecoins are allowed to expand, because that could pull more deposits away from banks and put greater pressure on lending as the market grows. In their view, that shift could weaken lending in local communities, where smaller banks still play a major role.
“The live policy concern is whether allowing yield on payment stablecoins would encourage deposit flight from banks, especially community banks, thus raising funding costs and reducing local lending over time,” ABA noted.
White House study finds limited impact on lending
The ABA responded after the White House released a paper on 8 April about stablecoin yield and bank lending.
The report stated that banning stablecoin yield would have a minimal impact, with total bank lending increasing by about $2.1 billion.
This includes around $500 million from community banks. It also suggested that most of the money backing stablecoins would still come back to the banking system.
The ABA disagreed with this view, stating that the main concern is what happens if yield-bearing stablecoins grow enough to take more deposits away from banks over time.
ABA says the bigger risk is deposit migration
The ABA argued that today’s stablecoin market is still too small to show the full impact of yield on bank deposits.
It said the market, now around $300 billion, does not yet reflect what could happen if stablecoins grow much larger. In the group’s view, policymakers should be thinking about a future market worth $1 trillion or even $2 trillion.
At that scale, the ABA said yield would become much more than a minor feature. It could turn into a strong reason for households and businesses to move money out of traditional bank accounts and into stablecoins.
The ABA also pointed to its own estimates to argue that the lending impact could become much more serious than the White House paper suggests.
As an example, the group said lending in a single state like Iowa could fall by about $4.4 billion to $8.7 billion as payment stablecoins grow.
By using that state-level case, the ABA tried to show that the effect may not be small or abstract. Instead, it argued that wider stablecoin adoption could create real pressure on bank funding and local lending markets.
Why community banks are central to the argument
The ABA said smaller banks would likely feel the pressure first if stablecoins start offering yield more widely.
According to the group, community banks cannot lose deposits without consequences. If customers move money out, those banks may need to replace the lost funding through costlier options like wholesale borrowing or other market-based sources.
They may also be forced to offer higher deposit rates to keep customers from leaving. In both cases, funding becomes more expensive, which can reduce lending and push borrowing costs higher for households and small businesses.
The ABA also rejected the idea that deposit reshuffling inside the banking system is harmless. It said the problem does not disappear just because the money stays somewhere in the broader system.
If deposits move away from community banks and toward larger institutions or stablecoin reserve accounts, the local impact can still be serious.
That matters because smaller banks rely heavily on local deposits to fund local loans. The ABA argued that if those deposits shift elsewhere, relationship-based lending could weaken in the communities that depend on it most.
“Even if total deposits in the banking system remain constant, deposits will be reallocated away from smaller banks toward a smaller set of large institutions, and the share of deposits tied up in stablecoin reserves will eat into overall bank lending capacity,” ABA stated.
ABA says stablecoins should not replace bank deposits
The ABA also warned against treating stablecoins like a narrow-bank alternative without thinking through the impact on lending.
It said policymakers should not assume that shifting funds into stablecoin structures would preserve credit creation in the same way traditional banks do. In its view, that risk is not fully addressed in the current policy discussion.
The group argued that stablecoins should grow as a payments tool, not as a direct substitute for insured bank deposits.
For that reason, it said restricting or banning yield on payment stablecoins could be a sensible safeguard to limit unintended pressure on the banking system.