Written & Compiled by: KarenZ, Foresight News
Last summer, during the debate over the "GENIUS Act" in the U.S. Congress, economist Andrew Nigrinis threw out a number—if stablecoins could pay interest, bank loans could evaporate by $1.5 trillion.
This number spread quickly in Washington. Banking lobby groups used it as an argument, some lawmakers used it as a reason, and ultimately a clear prohibition was added to the bill: any stablecoin issuer is prohibited from paying interest or returns to holders. The logic is straightforward—if you can earn more money on-chain, who would still deposit money in banks? With fewer deposits, banks have no ammunition, and borrowers suffer as a result.
Sounds reasonable, right?
However, the "GENIUS Act" did not explicitly restrict third-party platforms from offering interest-like yields. But parts of the currently proposed "CLARITY Act" attempt to plug this loophole.
In April this year, the White House Council of Economic Advisers (CEA) released a research report saying: wait, this claim might be a bit overblown. The CEA directly responded to this logic using a full set of equilibrium models and reached a possibly unexpected conclusion: banning stablecoins from distributing yields has a very small effect on protecting bank lending.
The number they calculated is: $2.1 billion, not $1.5 trillion—a difference of nearly 700 times.
Where Does a Dollar Go After Entering a Stablecoin?
The statement "stablecoins suck away deposits" sounds very visual, but it skips a key step—what does the issuer do with that money after it's used to buy the stablecoin?
The CEA breaks it down into three scenarios:
Scenario 1: The issuer buys Treasury bonds with the reserves:
A user withdraws $1 from Bank A to buy a stablecoin. The issuer takes this $1 and immediately buys a Treasury bond from a dealer. The dealer, after selling the bond, deposits the received $1 into Bank B. The final result: Bank A has one less deposit, Bank B has one more deposit. The total amount of deposits in the entire banking system remains unchanged; it just changed which bank owns it.
Scenario 2: The issuer deposits the reserves as cash in a bank, but the bank is required to hold 100% reserves:
Again, $1 enters the stablecoin system, and the issuer deposits it into Bank C. The book deposit of Bank C remains unchanged, but regulations require Bank C to back this deposit with 100% central bank reserves—meaning this $1 is "locked up" and cannot be expanded into loans via the credit multiplier. This is the true meaning of loss of bank lending capacity.
Scenario 3: Reserves flow into a money market fund:
If the fund then buys Treasury bonds, the logic returns to Scenario 1.
If the fund deposits the cash into the Fed's overnight reverse repo facility (ON RRP), this money becomes a liability of the Fed and is no longer a commercial bank deposit—but the CEA points out that this phenomenon is common to the entire non-bank financial system, not unique to stablecoins.
Therefore, the core of the issue is not the total amount of deposits, but the structure of the deposits—what proportion of stablecoin reserves actually enter that "100% reserved, un-lendable" pocket?
The CEA breaks this down. The two largest issuers in the current market, Tether and Circle, together account for over 80% of the stablecoin market share. What they do with the USD they receive from users is basically one thing: buying U.S. short-term Treasury bonds. Circle's reserve report for the end of 2025 shows that 88% of USDC reserves are held in Treasury bonds and repurchase agreements, with only 12% held in the form of bank deposits. Tether is even more extreme; out of its $147.2 billion in reserves, bank deposits are only $34 million, not even a fraction.
The only scenario that truly affects bank lending capacity is when the issuer deposits the reserves in a bank, and regulations require that bank to hold 100% reserves against that money. That is, for Circle's USDC reserves, only 12% of the reserves take this path. The remaining 88% continues to circulate within the banking system.
Even If It Leaks Out, It Has to Be Caught by Three Nets
Assume stablecoins no longer pay interest, and users start moving money back to banks. But for this capital to become actual bank loans, it must pass through three checkpoints.
First checkpoint: How much capital would actually flow back to banks? The report, referencing historical elasticity data from money market funds for calibration, estimates that under the baseline scenario, approximately $54.4 billion would shift from stablecoins back to traditional deposits due to the yield dropping to zero. This number itself is already high—a significant portion of stablecoin holders are not in it for the yield at all; they want the speed of cross-border transfers or a dollar account independent of their local banking system. Whether it pays interest or not has little impact on their decision.
Second checkpoint: Out of this $54.4 billion, how much actually changes bank lending capacity? Only the 12% (in the case of USDC) portion, which is about $6.5 billion. The other 88% was circulating in the Treasury market before and after the ban, having no net impact on bank lending capacity.
Third checkpoint: Can the $6.5 billion entering banks be fully lent out? No. Banks need to hold reserves. The current effective reserve ratio in the U.S. banking system is about 30%, leaving 70% as lendable funds. Moreover, the Fed currently maintains an "ample reserves" framework, with banks collectively holding over $1 trillion in excess liquidity buffers—for every new dollar of lending capacity, ultimately less than 50 cents becomes a real loan, with the rest being actively absorbed by banks into their liquidity buffers.
After passing through these three checkpoints, $54.4 billion becomes $2.1 billion, only 0.02% of total loans (about $12 trillion).
Then calculate the cost on the other side: stablecoin holders lose the approximately 3.5% annualized yield they could have obtained, resulting in a net welfare loss of about $800 million per year.
In the CEA's words, the cost-benefit ratio of this ban is 6.6, meaning the cost is 6.6 times the benefit, making it very inefficient.
How Was That $1.5 Trillion Calculated?
Since the White House model gives $2.1 billion, where did the original $1.5 trillion come from?
The CEA traces its origins in the report. Nigrinis's (2025) estimate directly borrowed the model established by Whited, Wu, and Xiao (2023) for Central Bank Digital Currency (CBDC)—CBDC, as a liability of the Fed, would directly withdraw deposits from the commercial banking system; for every dollar entering, bank loans decrease by about 20 cents. Nigrinis directly applied this multiplier to the stablecoin scenario, while assuming stablecoins would expand massively after offering competitive yields, ultimately推算 (推算 - calculated/derived) the $1.5 trillion loan contraction.
The problem is, there is an essential difference between CBDC and stablecoins: CBDC is a central bank liability; deposits entering it leave the commercial banking system. The reserves of stablecoins mostly flow back to commercial banks through the Treasury market. Nigrinis's model did not track where this money went; it only saw deposits decreasing at one bank, not increasing at another.
This is the fundamental difference between partial equilibrium and general equilibrium. Mistaking the loss of one bank for the loss of the entire system naturally leads to an error of orders of magnitude.
Another Overlooked Account
The report specifically points out an effect not covered by the model but working in the opposite direction: stablecoins' overseas demand for U.S. Treasury bonds.
Over 80% of stablecoin transactions occur outside the U.S.,背后是 (behind which are) ordinary users in countries with unstable currencies using dollar stablecoins as savings tools. This group supports real demand for U.S. Treasury bonds; IMF data shows that the scale of U.S. Treasury bonds held by stablecoin issuers has surpassed that of Saudi Arabia. BIS research shows that every $3.5 billion inflow into stablecoins can depress the 3-month Treasury yield by 5 to 8 basis points. If the ban suppresses stablecoin adoption, this overseas demand channel contracts, U.S. Treasury financing costs rise, and this cost might directly offset that tiny increment on the bank lending side.
So, what does all this actually illustrate?
It's not that stablecoins have no impact on banks, but rather that the source of that impact, to a very large extent, is not "whether they can pay interest." The真正关键的 (truly crucial) thing is what proportion of the stablecoin issuer's reserves are placed in that must-be-100%-reserved lockbox. If regulations push this proportion higher in the future, the impact would才开始变得显著 (begin to become significant).
Regarding the ban on paying interest, for bank lending, the cost-benefit ratio is 6.6; for the stablecoin ecosystem, it cuts off its ability to provide competitive yields to ordinary users; for U.S. Treasury financing, it might even be counterproductive.
One piece of legislation, with no clear beneficiary, but with clear losers. This is what is truly thought-provoking about this report.
