US CLARITY Act: Prohibiting stablecoin yield would do little to protect bank lending – The White House

• The White House Council of Economic Advisers report states that prohibiting stablecoin yield under the CLARITY Act would only mildly increase bank lending.
• The report adds that concerns about deposit flight from banks to stablecoins are overstated, as reserves stay within the traditional financial system.
• Banning stablecoin yield could limit consumer benefits from competitive returns on stablecoin holdings.

The White House Council of Economic Advisers (CEA), in its “Effects of Stablecoin Yield Prohibition on Bank Lending” report released on Wednesday, states that banning yield on US Dollar (USD)-backed tokens would have little positive impact on bank lending. At the same time, the move would forego consumer benefits on holdings and result in a net welfare cost.

Eliminating stablecoin increases bank lending only marginally 

The United States (US) GENIUS Act, signed into law in July, outlines that stablecoin issuers are required to maintain reserves backed on at least a 1:1 basis in specified assets, including USD, Federal Reserve notes, certain short-term Treasuries, money market funds (MMFs) and funds held at certain insured or regulated depository institutions.

Stablecoin issuers are under the GENIUS Act, prohibited from offering any form of interest or yield to holders. Although the same law does not explicitly prohibit affiliate or third-party arrangements that might offer interest-bearing products, some variants of the proposed CLARITY Act are poised to close this provision.

Stakeholders supporting the prohibition of yield argue that if interest were allowed on stablecoins, it would trigger a deposit flight, in which US households move their dollar holdings from the traditional banking system into tokens. Also, yield-bearing stablecoins, which are fully backed and not fractionally lent, could lower bank lending.

Meanwhile, the White House Council of Economic Advisers model, which explored the above claims, found that prohibiting stablecoin yield would increase bank lending by $2.1 billion, accompanied by a net welfare cost of $800 million. Otherwise stated, this would be a 0.02% increase in lending and a cost-benefit ratio of 6.6.

Large banks would account for the lion’s share of the additional lending at 76%, whereby community banks, with assets valued below $10 billion, would lend the balance at 24%.

“In our baseline, that adds up to $500 million in additional lending from community banks, meaning their lending rising by 0.026%,” the White House report states.

Despite the report exploring various worst-case scenarios, the model used produced only $531 billion in additional cumulative lending, corresponding to approximately a 4.4% increase in bank lending as of the fourth quarter of 2025. 

To achieve such a figure, the report claims that the stablecoin market needs to grow roughly six times its current value to reach a share of deposits and reserves locked, with no other lending cash other than Treasuries, and for the Fed to shift from its current monetary policy.

“Even under those implausible conditions, community bank lending only rises by $129 billion, corresponding to an increase of 6.7%,” the report explains.

Stablecoins are dollar-backed digital tokens redeemable on demand for USD on a 1:1 ratio. Issuers mint the tokens when a customer deposits USD and destroy them when the tokens are withdrawn, maintaining an equilibrium. The issuer has the mandate to hold the deposits as reserve assets or purchase other liquid assets such as Treasuries, which then form part of the reserve. 

The stablecoin market is currently valued at $310 billion, with Tether (USDT) at $184 billion, Circle’s USDT at $78 billion, and USDS at $11 billion. Stablecoins are regulated under the GENIUS Act.