The White House’s Council of Economic Advisers backed a proposal this week to allow stablecoin issuers to pay investors a return on their holdings, putting the Trump administration at odds with the banking industry.
The move escalates a fierce lobbying fight in Washington over whether to allow stablecoins, a form of cryptocurrency, to operate like more traditional financial instruments.
Designed to mirror the value of the U.S. dollar, stablecoins function as a digital “cash equivalent” in crypto markets, pegged to the value of one dollar. They have become a staple of the crypto market, providing traders with a reliable way to hedge against other inherently volatile coins and lower their portfolio risk.
Stablecoins are backed by U.S. Treasury debt, short-term bonds that provide holders a yield: interest income.
In a report released on Tuesday, White House economic officials pushed back on warnings from banking lobbyists that any policy allowing stablecoins to directly offer yields to investors would siphon their deposits and curtail lending. Their analysis concluded that banning such yield income payments would actually increase bank lending on a marginal basis, by $2.1 billion, or about 0.02 percent of total loans.
The Independent Community Bankers of America, a trade group, has warned that small banks risk losing $1.3 trillion in deposits and $850 billion in loans if legislation enabling yield on stablecoins is passed.
The White House argued that both large and small banks would benefit from the additional loan growth they project, and that “a yield prohibition would do very little to protect bank lending, while forgoing the consumer benefits of competitive returns on stablecoin holdings.”
It’s the latest escalatory move in a fight that began last year between traditional banks and the fast-growing cryptocurrency industry over who gets to collect deposits, and what can be done with them. The current skirmish is over the Trump-backed Digital Asset Market Clarity Act, which remains stalled in Congress.
Intense lobbying has kept the legislation in a holding pattern for several months.
Banks — as a core function — take in deposits, lend money out and pay customers a fluctuating level of interest on their savings. Stablecoin issuers, by contrast, are required under federal law to hold cash reserves (and other perceived high-quality, cash-like equivalents) against every token they issue. The issuers cannot lend that money.
Critics of stablecoin yield argue that if customers move savings piles into interest-bearing tokens — which continue to grow as an asset class — the cash inflows to American banks could drop significantly. Smaller banks, with customer bases that are less sticky than those of larger firms like Wells Fargo or Bank of America, are especially worried.
The GENIUS Act, signed into law by President Trump last summer, gave the crypto industry the greenlight to more closely merge with traditional finance. But it also required stablecoin issuers to hold dollar-for-dollar reserves and banned them from paying yield directly to holders. The issue at hand is a loophole that allows affiliates of the stablecoin issuers to offer customers “rewards.”
That, critics say, effectively recreates the sort of interest-income product that was supposed to be curtailed.
“Before the ink was dry on GENIUS, the crypto industry started really touting and marketing ways in which people could, still, secure yield in all-but-name on their platforms,” said Mark Hays, the associate director of cryptocurrency and financial technology at Americans for Financial Reform, a nonprofit group pushing for stricter crypto regulation.
Stablecoins remain small as a share of the U.S. Treasury market cash flows.
And the banking industry faces multiple pressure points internally. Many larger institutions have launched into the cryptocurrency and stablecoin “digital asset” sphere themselves, contain departments that stand to benefit from the expansion of the stablecoin market and interest income that could make the coins more attractive.
Banks such as Morgan Stanley, Citigroup and BNY, as well as large asset managers like BlackRock, are all involved, to different extents, in those crypto lines of business.
Lawmakers have signaled that legislation addressing the crypto market structure will come up for key votes this spring. Mr. Trump has maintained a deep dedication to further entwining cryptocurrencies with the traditional financial system.
Consumer watchdogs, wary of the president’s personal financial connections to the crypto world and the volatility of crypto assets themselves, are urging caution as agencies and Congress finalize laws and regulations.
“The banks are hoping to use Clarity as a backdoor to fix their problem, and the crypto industry is saying: ‘Wait, we settled this in GENIUS. And oh, by the way, we really need stablecoins to work the way they do on our platforms or it hurts our business model,’” argued Mr. Hays, referring to the Digital Asset Market Clarity Act.
“Those two powerful forces,” he said, “have put things at a roadblock.”
Talmon Joseph Smith is a Times economics reporter, based in New York.
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