White House Analysis: Ban on Stablecoin Yields Would Add Only Modest Bank Lending

Washington — A new White House analysis suggests that banning stablecoin issuers from paying interest would have only a small effect on bank lending under current conditions, but could have larger impacts under extreme scenarios.

Key findings

• The Council of Economic Advisers (CEA) brief dated April 8 estimates that enforcing a federal prohibition on stablecoin issuers paying yield would increase bank lending by about $2.1 billion — roughly 0.02 percent of outstanding loans — under baseline assumptions.
• In a pessimistic, "worst‑case" scenario that stacks adverse assumptions about stablecoin growth and reserve choices, the CEA places an upper bound on additional lending at $531 billion, about 4.4 percent of bank loans as of Q4 2025.
• The brief concludes: “In short, a yield prohibition would do very little to protect bank lending, while forgoing the consumer benefits of competitive returns on stablecoin holdings.”

What the analysis weighed

The paper focuses on one provision of the GENIUS Act, the stablecoin law President Donald Trump signed on July 18, 2025, which creates a federal framework for "permitted payment stablecoins". The statute requires one‑to‑one reserves in specified safe assets — U.S. dollars, certain insured bank deposits, short‑term U.S. Treasuries and Treasury‑backed repurchase agreements — and bars issuers from paying interest on those tokens.

Section 4(a)(11) of the law states: “No permitted payment stablecoin issuer or foreign payment stablecoin issuer shall pay the holder of any payment stablecoin any form of interest or yield … solely in connection with the holding, use, or retention of such payment stablecoin.” Proponents of the ban say it prevents stablecoins from becoming higher‑yield substitutes for bank deposits and thereby drawing deposits away from banks that fund loans.

Model, data and assumptions

CEA economists modeled money flows under two regimes: one in which permitted stablecoin issuers could pay interest and one in which they could not. The baseline simulated a stablecoin market of roughly $300 billion, using market capitalization data from Feb. 16, 2026 (about $185 billion for Tether’s USDT and $75 billion for Circle’s USDC).

Under the baseline, the yield prohibition modestly slows the shift of funds from banks into stablecoins, freeing a small amount of deposits to support loans. The projected $2.1 billion boost to lending is accompanied by a net welfare cost to consumers of about $800 million, reflecting lost interest income relative to the small credit gains.

Distributional effects

• Large banks would capture about 76 percent of the incremental lending.
• Community banks (under $10 billion in assets) would gain about 24 percent, equal to roughly $500 million or a 0.026 percent lift in their lending under the baseline.

Under the CEA’s worst‑case scenario — where the stablecoin sector expands to roughly six times its current size relative to deposits and reserve allocations are least favorable to banks — aggregate bank lending could be up to $531 billion higher with a yield ban in place, with community banks gaining about $129 billion (6.7 percent).

How this compares with earlier estimates

Those upper‑bound figures are far below some earlier, larger estimates. The brief cites an October 2025 paper by former regulator Andrew Nigrinis that argued deposit outflows could threaten around $1.5 trillion of bank lending capacity if wallets and exchanges passed through yields comparable to the federal funds rate.

Industry reaction and the regulatory gap

Banking trade groups — including the American Bankers Association, Independent Community Bankers of America and the Bank Policy Institute — have urged regulators to close what they view as a loophole: the possibility that exchanges, wallets or affiliates could use their own funds or revenue‑sharing arrangements to pay yield on stablecoin balances even if issuers are barred from doing so.

The GENIUS Act’s text explicitly targets payments of interest or yield by “permitted payment stablecoin issuers” and “foreign payment stablecoin issuers,” but does not unambiguously prohibit third‑party intermediaries from offering interest‑like returns. The CEA brief cites Coinbase’s former “USDC Rewards” program, which was partly funded through revenue sharing with USDC issuer Circle, as an example of the structures now under scrutiny.

The CEA conditions many of its results on the Federal Reserve’s current “ample reserves” regime, where banks hold large central‑bank reserve balances and the Fed supplies liquidity to prevent reserve shortages from abruptly contracting lending. Under those conditions, the brief argues, where reserves are invested matters: if stablecoin reserves are placed in Treasuries or deposited at regulated banks, much of the money continues circulating through the banking system and supporting loans. If reserves are held in accounts that cannot fund lending, the effect on credit supply could be larger.

Regulatory path forward

Federal regulators are moving to implement the GENIUS Act. The Office of the Comptroller of the Currency issued a notice of proposed rulemaking in February on supervising national banks’ involvement with stablecoin issuers. The Treasury Department and the Federal Deposit Insurance Corp. have released proposals and guidance, and public comment periods remain open on several elements of the framework.

A central unresolved question is whether regulators will treat affiliate and third‑party yield programs as effectively violating the statute’s ban. Bank groups want an expansive interpretation; stablecoin issuers and crypto platforms warn that strict prohibitions could curb consumer choice and push activity offshore.

Implications

If regulators and lawmakers accept the CEA’s quantitative conclusion that a yield prohibition “would do very little to protect bank lending,” the policy trade‑off becomes clearer: is limiting returns on dollar‑linked tokens worth the foregone income for households and businesses that hold them? The answer will shape whether stablecoins evolve to act more like interest‑free digital cash for payments or come to resemble deposit accounts that pay a competitive yield.

For community banks, the stakes hinge on how large the stablecoin sector becomes and how regulators close potential loopholes. Under baseline conditions the lending boost to small banks is modest; under extreme scenarios it could be meaningful.

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