A new report from the White House’s Council of Economic Advisers is pushing back on one of the most contested claims in U.S. crypto policy: that stablecoin yield threatens the banking system.
The 8 April paper finds that prohibiting yield on stablecoins would have only a minimal impact on bank lending, while imposing measurable costs on consumers and the broader financial system.
At the center of the debate is whether stablecoin issuers should be allowed to pass through returns generated from reserve assets—typically short-term U.S. Treasuries—to users.
Banking groups have argued that offering yield could draw deposits away from traditional banks, reducing their ability to lend.
However, the White House analysis suggests those concerns may be overstated.
Yield ban delivers limited gains for banks
According to the report, eliminating stablecoin yield would increase bank lending by just $2.1 billion, or roughly 0.02% of total loans. At the same time, the policy would result in an estimated $800 million annual welfare loss, largely due to reduced returns for users.
Even under more aggressive assumptions—such as significantly higher stablecoin adoption—the overall impact on lending remains relatively small compared to the size of the U.S. financial system.
The findings challenge a key argument that has shaped ongoing legislative discussions, particularly around provisions in the proposed CLARITY Act that seek to restrict or fully eliminate yield-bearing stablecoin products.
Why the “deposit drain” narrative falls short
The report’s core insight lies in how stablecoin reserves interact with the banking system.
Rather than removing liquidity entirely, most stablecoin reserves are held in Treasury bills and similar instruments.
This means that the underlying capital is often recycled back into the financial system. In many cases, deposits simply shift between institutions rather than disappearing.
The analysis estimates that only a small fraction—around 12% of reserves held as cash-like deposits—meaningfully affects banks’ lending capacity.
As a result, even large shifts from stablecoins back into bank deposits translate into only modest increases in actual credit creation.
Policy implications for the CLARITY Act
The report arrives at a critical moment for U.S. stablecoin regulation.
One of the sticking points in negotiations around the CLARITY Act has been whether to ban yield entirely. This includes indirect rewards offered through intermediaries such as exchanges.
Proponents argue this would protect banks and preserve financial stability, while critics see it as limiting competition.
By quantifying the limited benefits of a yield ban, the White House analysis weakens the economic case for strict restrictions.
It also highlights a tradeoff: preventing yield may slightly support bank lending, but at the cost of reducing consumer returns and slowing innovation in digital payments.
A broader shift in the financial model
Beyond the immediate policy debate, the report frames stablecoins as part of a broader shift toward what economists describe as “narrow banking”—a system where assets are fully backed by safe reserves rather than used for fractional lending.
In this model, stablecoins could offer faster settlement, global accessibility, and reduced credit risk, particularly for users outside the traditional banking system.
The question now facing regulators is not just whether stablecoins compete with banks, but whether limiting that competition ultimately serves the financial system.
Final Summary
- A White House report finds that banning stablecoin yield would have a negligible impact on bank lending while reducing consumer welfare.
- The findings challenge a key argument behind CLARITY Act negotiations, potentially reshaping how lawmakers approach stablecoin regulation.
