The American Bankers Association warns that allowing stablecoins to pay interest will accelerate the loss of deposits and severely impact community bank lending

According to an article in the American Bankers Association (ABA) Journal, experts including the ABA's chief economist pointed out that the recent research report by the White House Council of Economic Advisers (CEA) on payment stablecoins raises the wrong questions and may mislead policymakers.

The CEA report mainly explores "how banning the issuance of yields on payment stablecoins would affect bank lending," concluding that banning yields would only increase bank lending by about $1.2 billion, with minimal impact. However, the ABA believes that the real policy concern is not the consequences of "banning," but the risks that allowing yields on payment stablecoins could bring: accelerating deposit outflows and allowing yields to stimulate households and businesses to move funds from bank deposits (especially community banks) to stablecoins, which would have a significant impact when the market size expands to $1-2 trillion. ABA analysis shows that loans in Iowa alone could decrease by $4.4 billion to $8.7 billion as a result.

Impact on community banks: Deposit outflows will force community banks to replace funding with higher-cost wholesale financing (such as Federal Home Loan Bank advances), raising their financing costs and thereby reducing loans to local households and small businesses. Not a harmless "reshuffling": The CEA believes that deposits are merely "reshuffled" within the banking system, with little overall impact. However, the ABA points out that deposits flowing from community banks to a few large institutions or stablecoin reserve accounts will harm areas that rely on relationship banking for loans. The ABA believes that banning the issuance of yields on payment stablecoins is a prudent protective measure that allows stablecoins to mature as a payment innovation tool rather than becoming a source of economic risk that replaces insured deposits.