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As debates continue in the US regarding stablecoin regulations, the American Bankers Association (ABA) has raised a notable objection to a report published by the White House’s Council of Economic Advisors (CEA).

The union argued that the study ignored critical risks for policymakers and that its analytical framework was flawed.

According to the ABA, the CEA report focuses on the wrong question by examining the impact on the banking system of banning interest payments on payment-based stablecoins. The ABA argues that the real issue to consider is the consequences of allowing interest-bearing stablecoins. In this context, it is stated that the proliferation of interest-offering stablecoins could accelerate deposit outflows, particularly from small and local banks, which could increase banks’ funding costs and weaken their lending capacity.

The statement noted that the current stablecoin market, worth approximately $300 billion, provides a misleading point of reference when compared to the scale it could reach in the future. According to the ABA, if the market grows to between $1 and $2 trillion, the interest rate mechanism could cease to be merely a product feature and become a key element accelerating the flow of funds from banks. In this scenario, it was argued that smaller banks, particularly those lending to local economies, would come under significant pressure and experience substantial contractions in credit supply.

The ABA also argued that the approach of “redistributing” deposits within the system underestimates the risks. It noted that the shift of deposits to large banks or stablecoin issuers could have economic consequences even if the total deposit level remains constant, and that this could weaken access to credit, particularly in sectors reliant on relationship banking. According to the ABA, the banking system cannot be viewed as a single balance sheet, and the local deposit-based lending mechanism of smaller banks is directly affected by such shifts.

The statement also raised concerns about the risk of stablecoins evolving into a “narrow banking”-like model. While this model might offer some advantages for payment systems, it could weaken banks’ core function of creating credit. Policymakers should focus not only on system security but also on how to protect credit intermediation.

In conclusion, the ABA argued that the CEA report downplayed the larger, structural risk by emphasizing short-term and limited impacts.

*This is not investment advice.

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