ABA Warns That Stablecoin Interest Payments Could Harm Community Banks

Huo Xing Finance reports that, according to an April 13 article in The Banker, published by the American Bankers Association (ABA), ABA chief economist and other experts have stated 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 only increase bank loans by approximately $1.2 billion—a negligible impact. However, the ABA argues that the true policy concern is not the consequence of a prohibition, but the risks posed by allowing payment stablecoins to offer yields: Accelerated deposit outflows: Permitting yields would incentivize households and businesses to shift funds from bank deposits—particularly at community banks—into stablecoins, with significant impact once the market scales to $1–2 trillion. ABA analysis shows that loan volumes in Iowa alone could decline by $4.4 to $8.7 billion as a result. Undermining 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 assumes deposits merely shift within the banking system with minimal overall effect. However, the ABA warns that deposits moving from community banks to a few large institutions or stablecoin reserve accounts would harm sectors reliant on relationship-based bank lending. The ABA contends that prohibiting payment stablecoins from offering yields is a prudent protective measure, allowing stablecoins to mature as innovative payment tools rather than becoming sources of economic risk that replace insured deposits.