White House Study Finds Stablecoin Yield Ban Barely Moves Lending Needle Despite Policy Focus – Regulation Bitcoin News

Key Takeaways:

• White House analysis finds stablecoin yield ban lifts lending by only 0.02%, indicating limited real-world impact.
• Analysis shows only about 12% of reserves could be constrained under full-reserve treatment, limiting lending effects.
• Council of Economic Advisers finds yield ban welfare gains require implausible assumptions to turn positive.

White House Analysis Challenges Stablecoin Deposit Outflow Concerns

A White House economic report is reshaping how policymakers assess stablecoin regulation and its impact on banking liquidity. The Council of Economic Advisers, part of the Executive Office of the President, released an analysis last week examining the GENIUS Act and related proposals. The report evaluates whether banning stablecoin yield meaningfully protects bank lending or alters financial intermediation across U.S. markets.

The analysis directly addresses legislative intent behind both the GENIUS Act and the proposed CLARITY Act. The report explains that policymakers aim to curb stablecoin yield to prevent deposit outflows from banks. It states that such measures are driven by concerns that competitive returns could weaken traditional funding bases. This framing establishes the basis for testing whether those concerns materialize in practice.

The study finds that stablecoin reserves largely circulate back into the banking system rather than exiting it, preserving credit channels. When users convert deposits into stablecoins, issuers typically allocate funds into short-term Treasuries, which then re-enter banks through dealer deposits. This recycling keeps aggregate deposits broadly stable, even as composition shifts between institutions. The report states:

“Our model shows that this concern is quantitatively small. Most stablecoin reserves recirculate through the banking system as ordinary deposits.”

The report further clarified that only 12% of stablecoin reserves are held in bank deposits that could be subject to full-reserve treatment, meaning those funds may be restricted from supporting lending if banks apply a 100% reserve requirement. This figure represents the only portion of stablecoin capital effectively removed from the credit multiplier. The remaining roughly 88% is primarily allocated to Treasury bills and similar liquid assets, which, as the report explains, return to the banking system through dealer deposits and related flows.

As a result, most stablecoin funds continue circulating within banks, limiting any direct reduction in lending capacity. Even for the portion that could re-enter the system, the report notes that banks absorb part of the additional capacity into liquidity buffers rather than extending new loans, further reducing the net lending effect.

Extreme Modeling Assumptions Weaken Case for Yield Restrictions

The report stated: “At baseline calibration, eliminating stablecoin yield increases bank lending by $2.1 billion, which represents a net increase of 0.02% of total loans.” The Council of Economic Advisers, which directly advises the White House, produced the findings, reinforcing the policy relevance of the analysis. The analysis added: “Producing lending effects in the hundreds of billions requires simultaneously assuming the stablecoin share sextuples, all reserves shift into segregated deposits, and the Federal Reserve abandons its ample-reserves framework.” These findings underscore that only highly unrealistic conditions would generate meaningful lending expansion.

The report concluded:

“It takes similarly implausible assumptions for the welfare effect of yield prohibition to turn positive.”

The findings indicate that the modeled lending gains remain limited under baseline conditions, while the effects on consumer returns vary depending on market structure and policy design. Given the White House affiliation of the Council of Economic Advisers, the findings may inform ongoing discussions around stablecoin regulation and banking system impacts.