Stablecoin Yields Could Hollow Out Community Banks — And Washington Is Asking the Wrong Question

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The American Bankers Association says the White House is missing the real risk: not whether banks lend more, but whether they lose deposits to higher-yielding stablecoins.

A quiet but consequential fight over stablecoin policy is exposing a sharp divide between how the White House and the banking industry see the same risk. At stake is whether yield-bearing stablecoins — digital tokens that pay interest — would drain deposits out of American banks, particularly the smaller community institutions that serve local economies.

A question of framing

The White House Council of Economic Advisers recently published a paper arguing that banning stablecoin yields would boost bank lending by roughly $2.1 billion — a figure it characterized as marginal, at around 0.02% of total bank lending. On its face, the conclusion appeared to minimize the threat.

The American Bankers Association wasn’t buying it. Chief economist Sayee Srinivasan and vice president for banking research Yikai Wang argued the administration had been answering the wrong question entirely. The real concern, they said, isn’t what happens to lending if yields are banned — it’s what happens to deposits if yields are allowed.

Community banks face a structural disadvantage

The ABA’s concern centers on what economists call compositional shifts. Even if total deposits across the banking system hold steady, stablecoin yields could pull funds from smaller community banks toward larger institutions better equipped to compete. Customers chasing better returns on stablecoins would likely exit local banks first.

For smaller banks without the balance sheet flexibility of a JPMorgan or Citigroup — both ABA members — the result could be a forced reliance on expensive wholesale borrowing, which in turn would raise costs and reduce their capacity for local lending.

That concern isn’t new. A Treasury Department analysis from April 2025 estimated that broad stablecoin adoption could trigger as much as $6.6 trillion in deposit outflows from the US banking system — a figure that puts the White House’s $2.1 billion framing in stark context.

The political pressure building in Congress

The debate is playing out in real time on Capitol Hill. Industry groups from both crypto and banking have been negotiating provisions in a Senate bill on crypto regulation ahead of a potential markup this month. The most contentious sticking point: language on whether stablecoins should be permitted to offer yield payments to holders.

Crypto industry leaders, including Coinbase CEO Brian Armstrong, have long argued that banks have suppressed interest rates on deposits for decades and that stablecoin competition is simply market discipline at work. The ABA, to its credit, doesn’t dispute this — its researchers acknowledged that households and businesses would rationally move funds toward higher-paying alternatives.

That admission underscores what makes the stablecoin yield debate so difficult. Everyone agrees the incentives are real. The disagreement is over who gets hurt and how much — and whether policymakers are asking the right questions before they decide.

Disclaimer: The information in this article is for general purposes only and does not constitute financial advice. The author’s views are personal and may not reflect the views of Chain Affairs. Before making any investment decisions, you should always conduct your own research. Chain Affairs is not responsible for any financial losses.