The American Bankers Association warns: Allowing stablecoins to pay interest will accelerate deposit withdrawals and deal a heavy blow to community bank lending.

Breaking News from Mars Finance, April 13 — According to an article published on April 13 by the American Bankers Association (ABA) in the “Bank Journal,” experts including the ABA Chief Economist pointed out that the recent research report by the White House Economic Advisory Council (CEA) on payment stablecoins raised incorrect questions, which could mislead policymakers. The CEA report mainly explores “how banning the issuance of earnings on payment stablecoins would affect bank lending,” and concludes that banning earnings would only increase bank loans 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 might arise from “allowing” payment stablecoins to earn yields:

• Accelerating deposit outflows: Allowing yields will stimulate households and businesses to transfer funds from bank deposits (especially community banks) to stablecoins, with significant effects 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 funds through more costly wholesale financing (such as Federal Home Loan Bank prepayments), raising their financing costs and reducing loans to local families and small businesses.
• Not harmless “reshuffling”: The CEA believes that deposits are merely “reshuffled” within the banking system, with little overall impact. But the ABA points out that deposits flowing from community banks to a few large institutions or stablecoin reserve accounts will harm sectors that rely on relationship-based bank loans.
  The ABA considers banning the earnings on payment stablecoins to be a prudent protective measure, allowing stablecoins to mature as a payment innovation tool rather than becoming a source of economic risk as a substitute for insured deposits.