- The ABA says the CEA answered the wrong question in its latest stablecoin report.
- ABA says the CEA avoided the crucial yield-paying stablecoin scaling in the report.
- Yield-paying payment stablecoins’ expansion will have a ripple effect on the economy.
The American Bankers Association (ABA) has criticized the latest report from the US President’s Council of Economic Advisers (CEA) concerning stablecoin implementation in the banking sector. In its latest publication, ABA noted that the CEA addressed the wrong question.
The CEA Missed the Bigger Picture
According to the ABA, CEA’s analysis misses the bigger policy concern and risks creating a misleading sense of safety by avoiding the much more consequential scenario of yield-paying stablecoin scaling quickly. They warned that allowing yield could pull deposits from community banks, raise funding costs, and tighten local lending.
In the meantime, the ABA recognized the CEA’s efforts to focus on analysis, which they believe tracks the crypto industry’s preferred narrative. According to the group, the cryptocurrency sector would prefer that the yield prohibition be treated as an “intervention,” providing room to conclude that the modeled effects are insignificant.
What the ABA Thinks About the Report
For context, according to ABA’s publication, the CEA’s headline conclusion is that prohibiting yield would increase bank lending by about $1.2 billion. The ABA considers this a banking rounding error that is relative to normal quarterly changes in bank lending. They believe that information based on that premise is insufficient for policymakers in addressing the original question of what happens to bank lending if stablecoin issuers are prohibited from paying yield.
The banking group raised a different question about the lending and funding-cost impact of allowing yield, as stablecoins grow from the current scale to a much larger market. They believe this question needs to be addressed because the baseline for the CEA paper is a stablecoin market of roughly $300 billion, which they consider “immature.”
Looking at the Broader Picture
Notably, the ABA thinks the CEA is making a relatively permanent decision based on limited information. The project that the stablecoin market would reach $1-$2 trillion in the future, and yield cannot be considered a minor product under such conditions. In their analysis, the ABA suggests the resulting credit effects can be economically meaningful even at the state level.
Amid their criticism of the policymakers’ analysis, the ABA noted that broader academic and industry studies agree on a basic dynamic. According to them, as yield-paying payment stablecoins expand, households and businesses have stronger incentives to move funds out of bank deposits and into stablecoins, unless Congress prohibits yield.
Related: Crypto Voices Accuse US Lawmakers of Protecting Banks Over Stablecoin Innovation
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