White House Analysis Questions Impact of Stablecoin Yield Ban

White House Economic Analysis Finds Stablecoin Yield Ban Offers Limited Support for Bank Lending

Key Takeaways

• The White House Council of Economic Advisers found that banning stablecoin yield would increase bank lending by only $2.1 billion, or 0.02 percent of a $12 trillion loan market.
• Consumers would lose an estimated $800 million in returns under a yield prohibition, exceeding the projected lending benefit.
• The GENIUS Act, signed in July 2025, requires one to one reserves for stablecoins and prohibits issuers from paying yield to holders.
• The analysis concludes that most stablecoin reserves continue circulating through the financial system rather than being removed from lending channels.

White House Model Challenges Core Argument for Yield Ban

The White House Council of Economic Advisers has released an economic analysis assessing the impact of prohibiting yield payments on stablecoins. The findings question a central justification for the current legal restriction.

Under the GENIUS Act, signed into law in July 2025, stablecoin issuers must hold reserves on a one to one basis. Each dollar in circulation must be backed by assets such as Treasury bills, cash, or money market funds. The law also prohibits issuers from paying interest or yield to stablecoin holders.

Supporters of the prohibition have argued that if stablecoins were allowed to offer returns comparable to savings accounts, households could shift funds from bank deposits into digital tokens. According to that view, banks would lose a key source of funding, potentially reducing their lending capacity. Some academic estimates suggested lending could contract by as much as $1.5 trillion, particularly affecting community banks.

The Council of Economic Advisers built a model to test these assumptions. Its conclusion states that a yield prohibition would do very little to protect bank lending, while eliminating potential consumer benefits from competitive returns on stablecoin holdings.

Estimated Lending Impact Remains Marginal

According to the White House analysis, banning stablecoin yield under current conditions would increase total bank lending by approximately $2.1 billion. Against a $12 trillion loan book, this represents a change of 0.02 percent.

At the same time, consumers would forgo an estimated $800 million in returns. The report calculates a cost benefit ratio of 6.6, meaning the economic cost to consumers would exceed the projected lending gains by more than six times.

The analysis attributes the limited impact to the way stablecoin reserves are managed. When users convert dollars into stablecoins, issuers typically invest the reserves in Treasury bills, repurchase agreements, and money market funds. These funds move through dealers and counterparties and re enter the broader financial system.

The Council examined three balance sheet scenarios and found that in the most common cases, aggregate deposits across the banking system remain largely unchanged. Funds may shift between institutions, but they do not disappear from the system.

A key variable in the model is the proportion of stablecoin reserves that are effectively removed from lending channels. Based on Circle’s December 2025 reserve report for USDC, the Council calibrated this share at 12 percent. Tether, according to the same report, holds $34 million in bank deposits against a $147 billion reserve pool, implying that the vast majority of reserves are not parked as idle bank deposits.

Role of Excess Liquidity and Monetary Conditions

The report also considers the broader monetary environment. It notes that banks currently hold more than $1.1 trillion in excess liquidity above regulatory minimums. In such conditions, deposit shifts between institutions do not force banks to contract lending because they maintain significant buffers.

The model indicates that under a different monetary framework, the outcome could be larger. If the Federal Reserve were operating with scarce reserves and several additional assumptions held simultaneously, the lending increase from a yield ban could reach $531 billion. However, the Council describes the required combination of conditions as implausible. These include a stablecoin market six times larger relative to its current size, a complete shift of reserves into locked deposits, high substitution between savings accounts and stablecoins, and a change in the Federal Reserve’s operating framework.

Existing Workarounds and Legislative Gaps

Although the GENIUS Act prohibits issuers from paying yield directly to stablecoin holders, the report highlights that third parties are not explicitly barred from offering rewards.

Coinbase, for example, offers USDC Rewards to customers who hold the token in its wallets. These rewards are funded through a revenue sharing agreement with Circle. As of February 2026, the rewards match rates on high yield savings accounts, reflecting underlying returns on Treasury assets.

Some versions of the proposed CLARITY Act would extend the prohibition to intermediaries, preventing them from passing yield to holders. The report notes that whether such measures would withstand political and legal scrutiny remains unresolved.

International Usage and Treasury Market Effects

The Council also addresses the international dimension of stablecoin adoption. More than 80 percent of stablecoin transactions occur outside the United States. Many users in countries with weak currencies or limited banking access use dollar backed tokens as savings tools.

Stablecoin issuers collectively hold more Treasury bills than certain sovereign nations, including Saudi Arabia. Research from the Bank for International Settlements cited in the report found that stablecoin inflows compress short term Treasury yields. This dynamic contributes to lower borrowing costs for the US government.

The Council did not quantify how a yield prohibition might affect foreign demand for stablecoins. However, it notes that reduced adoption could influence this channel of Treasury demand.

Our Assessment

The White House Council of Economic Advisers concludes that under current market and monetary conditions, prohibiting stablecoin yield produces only marginal gains for bank lending while imposing measurable costs on consumers. The analysis also highlights structural features of stablecoin reserve management, existing reward mechanisms through intermediaries, and the significant international role of stablecoins in Treasury markets. For users evaluating stablecoin based services, the findings clarify how federal policy interacts with banking liquidity, reserve structures, and potential returns on digital dollar holdings.