- ABA argues stablecoin yield could shift deposits away from banks, increasing funding costs and tightening credit supply.
- Larger $1T–$2T stablecoin market could amplify deposit migration, especially impacting community banks and local lending.
- Higher funding costs may force banks to raise rates or cut lending, reducing credit availability for households and SMEs.
The American Bankers Association challenged a recent White House Council of Economic Advisers report on payment stablecoins, arguing it misses key risks. The response followed the CEA paper examining lending impacts if issuers cannot pay yield. ABA said the analysis overlooks how allowing yield could drive deposit outflows and raise bank funding costs.
From Prohibition to Deposit Flight Risk
According to the American Bankers Association, policymakers should examine the effects of allowing stablecoin yield, not banning it. The group said the CEA framed prohibition as the intervention, which narrows the policy debate. However, ABA warned this framing aligns with industry narratives and understates broader risks.
The CEA paper estimated that banning yield could raise bank lending by about $1.2 billion. However, ABA described that figure as small relative to typical quarterly lending changes. It added that the estimate does not address future impacts as stablecoins expand.
Notably, the report used a current market size of about $300 billion. ABA said that baseline would differ from a projected $1 trillion to $2 trillion market. In larger markets, the group said yield becomes a key driver of deposit migration.
Larger Markets and Community Banks Issue
Across studies, ABA said researchers agree that yield-paying stablecoins increase incentives to move funds from bank deposits. However, the group noted that total deposits may stay stable while shifting between institutions. It said smaller banks could lose deposits to larger entities or stablecoin reserves.
That shift, according to ABA, affects lending capacity at the local level. Community banks rely on local deposits to extend credit. When deposits move, their lending ability moves as well.
ABA cited its analysis showing potential state-level effects. For example, lending in Iowa could drop between $4.4 billion and $8.7 billion as stablecoins grow.
Funding Costs and Credit Pressure
The group also addressed how banks respond to deposit losses. It said community banks must replace funding quickly through higher-cost sources. These include wholesale borrowing or capital market funding.
However, banks may also raise deposit rates to retain customers. In both cases, ABA said funding costs increase. It added that higher costs can reduce lending and raise borrowing costs for households and small businesses.The CEA paper suggested deposits could be reshuffled across the system. However, ABA said that shift could still reduce credit where relationship banking matters most.
