American Bankers Association Warning: Allowing Stablecoin Yield Will Accelerate Deposit Runoff, Devastate Community Bank Lending

BlockBeats News, April 13th: According to an April 13th article in the American Bankers Association (ABA) Banking Journal, experts including the ABA's Chief Economist pointed out that the recent research report on payment stablecoins by the White House Council of Economic Advisers (CEA) raised incorrect questions that could mislead policymakers.

The CEA report mainly explores "how banning the issuance of payment stablecoins would affect bank lending," and concludes that banning issuance would only increase bank lending by about $1.2 billion, with little impact. However, the ABA believes that the real policy concern is not the consequences of "banning," but the risks that "allowing" the issuance of payment stablecoins with yield may bring:

Accelerated deposit outflow: Allowing yield would incentivize households and businesses to move funds from bank deposits (especially community banks) to stablecoins, with a significant impact when the market size expands to $1-2 trillion. ABA's analysis shows that loans in just one state, Iowa, 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 funds with higher-cost wholesale funding (such as Federal Home Loan Bank prepayments), raising their funding costs and reducing loans to local households and small businesses.

Not a harmless "reshuffling": While the CEA believes that deposits would only "reshuffle" within the banking system, with little overall impact, the ABA points out that if deposits flow from community banks to a few large institutions or stablecoin reserve accounts, it will harm areas reliant on relationship-based bank lending.

The ABA believes that banning the issuance of payment stablecoins with yield is a prudent protective measure that can allow stablecoins to mature as a payment innovation tool, rather than becoming an economic risk as an alternative to insured deposits.