Big Assumptions, Bigger Impacts: Rethinking Stablecoin Policy Findings: Who Lends to Main Street When the Deposits Leave?
Abstract
In April 2026, the White House Council of Economic Advisers (CEA) released a report, Effects of Stablecoin Yield Prohibition on Bank Lending, that addresses the same question using a general equilibrium framework (the CEA Report). The CEA Report is best understood not as a refutation of the disintermediation concern, but as a model-driven effort to minimize it. The report agrees with the core mechanism: when deposits migrate into stablecoins, lending can fall. Its conclusion, however, is that the overall effect is likely to be small. Under its baseline calibration, the effect is small because most reserves recirculate through the banking system and because an ample-reserves regime allows balance sheets to absorb the shift. But that conclusion depends on a set of asssumptions: (1) that the relevant stablecoin market is still small enough to make the issue marginal; (2) that the stablecoin-to-deposit ratio will remain low enough that the issue never grows much beyond the report’s stress scenarios; (3) that large banks and community banks are basically the same; (4) that money staying in the banking system means lending is preserved; and (5) that the ample-reserves regime is the right baseline for judging future deposit competition.
Once those assumptions are relaxed, the central concern reemerges. That is especially true with respect to scale. The CEA’s baseline is anchored by relying on a snapshot of a still-small market, roughly 1.7% of deposits in its baseline, rather than to the larger adoption scenarios cited in my earlier paper (Nigrinis 2025), which motivate the policy debate in the first place. In brief, the CEA Report evaluates the lending effects of a policy framework designed to expand stablecoin adoption by calibrating the model to a market that is still nascent.
The one core mechanism at the heart of this policy debate is simple: stablecoins pull dollars out of banks’ core deposit base, and core deposits are what banks use to fund lending. If those dollars come back at all, they often come back in a different form, more concentrated, more wholesale, more rate-sensitive, and more prudentially expensive, so they do not support lending in the same way as ordinary retail deposits. That is why the issue is not merely whether the funds remain somewhere in the financial system, but whether they return to the institutions, at the scale, and in the liability form that actually supports relationship lending to small businesses, farmers, and rural communities.