ABA Warns That Stablecoin Interest Payments Could Harm Community Bank Lending

ChainCatcher report: According to an article in The Banker, published by the American Bankers Association (ABA), ABA chief economist and other experts argue that the recent White House Council of Economic Advisers (CEA) report on payment stablecoins poses the wrong questions and may mislead policymakers. The CEA report primarily examines how prohibiting payment stablecoins from offering yields would affect bank lending, concluding that such a prohibition would increase bank loans by only about $1.2 billion—a negligible impact. However, the ABA contends that the true policy concern is not the consequence of a prohibition, but the risks posed by allowing payment stablecoins to offer yields: accelerating deposit outflows. Permitting yields would incentivize households and businesses to shift funds from bank deposits—particularly at community banks—into stablecoins, with significant consequences once the market expands to $1–2 trillion. ABA analysis shows that loan volumes in Iowa alone could decline by $4.4 to $8.7 billion. Impact on community banks: Deposit outflows would force community banks to replace lost funding with more expensive wholesale financing, such as advances from Federal Home Loan Banks, raising their funding costs and reducing lending to local households and small businesses. Not a harmless “reshuffling”: The CEA suggests deposits merely shift within the banking system with minimal overall impact. But the ABA points out that deposits moving from community banks to a few large institutions or stablecoin reserve accounts undermine sectors reliant on relationship-based bank lending. The ABA argues that prohibiting payment stablecoins from offering yields is a prudent protective measure, allowing stablecoins to mature as innovative payment tools rather than becoming a source of economic risk by substituting for insured deposits.