White House CEA Says Stablecoin Yield Ban Would Have Minimal Impact on Bank Lending

The White House’s Council of Economic Advisers (CEA) has pushed back against claims that banning yield payments on stablecoins would materially boost bank lending, arguing the effect would be “negligible” while the consumer cost could be substantial. The analysis lands directly in the middle of a heated U.S. policy debate over whether stablecoins should be allowed to pass through interest earned on reserve assets such as Treasury bills.

In an April 2026 report titled Effects of Stablecoin Yield Prohibition on Bank Lending, the CEA said its internal modeling shows that a full prohibition on stablecoin interest would increase bank lending by only about $2.1 billion—roughly 0.02% of total loans—while generating an annual net welfare loss of around $800 million. The report estimates the policy’s cost-benefit ratio at 6.6, meaning the costs would exceed the benefits by more than sixfold.

The findings contradict earlier warnings from some researchers and industry critics who have suggested stablecoin yield could drain deposits from banks at scale, potentially curtailing credit creation by hundreds of billions—or even trillions—of dollars. The CEA’s central point: dollars moving into stablecoins do not necessarily vanish from the banking system’s capacity to fund loans.

According to the report’s mechanism, when stablecoin issuers invest reserves primarily in short-dated U.S. Treasuries (T-bills), the cash used to purchase those securities typically flows through dealers and returns to the financial system as deposits elsewhere. As a result, the banking system’s aggregate deposit base does not fall one-for-one with stablecoin growth. Under the CEA framework, the only portion that meaningfully affects bank balance sheets is the share of reserves held as bank deposits—referred to in the report as the parameter ‘theta’ (θ).

On that point, the report cites issuer disclosures indicating that θ is often small. Circle’s USDC reserves report for December 2025 put the share held in bank deposits at roughly 12%, the CEA noted. For Tether’s USDT, the report said the bank-deposit share is “close to zero” relative to a reserve base it pegged at $147.2 billion.

The current Federal Reserve operating environment also matters. The CEA stressed that under the Fed’s ‘ample reserves’ regime—where banks hold liquidity well above regulatory minimums—deposit shifts do not automatically force banks to cut lending. In such a system, a reduction in deposits at one bank can be offset by liquidity conditions and reserve abundance across the system, blunting the assumed link between deposit competition and credit contraction.

Even under a stack of aggressive assumptions, the report said, the upside for bank lending remains limited and requires highly improbable conditions to occur simultaneously. In the most extreme scenario, the CEA assumes the stablecoin market grows sixfold from current levels, all reserves are held as bank deposits (θ=1), and the Fed abandons its ample-reserves framework. Only then does the model produce additional lending of $531 billion—about 4.4% of total loans. The CEA emphasized that this outcome depends on four independent assumptions aligning at once, a combination it describes as unlikely.

The report also challenges a second political justification: that banning stablecoin yield protects community and regional banks from deposit flight. In the baseline estimate, banks with less than $10 billion in assets would see lending rise by about $500 million—just 0.026%. Structurally, the CEA argued, stablecoin reserve custody and management are concentrated among large institutions—pointing to Bank of New York Mellon and BlackRock’s roles in the ecosystem—while stablecoin users skew younger, urban, and higher income, limiting direct ties to smaller local lenders.

To reinforce that point, the CEA referenced a 2025 empirical analysis by Charles River Associates that found no statistically meaningful relationship between increases in USDC market capitalization and changes in regional bank deposits.

Beyond domestic banking, the CEA warned that a yield prohibition could weaken offshore demand for dollar-denominated assets. The report estimates that more than 80% of stablecoin transactions occur outside the United States, where users often treat dollar stablecoins as a savings and payments rail. Because issuers back stablecoins with U.S. Treasuries, that offshore usage can translate into incremental demand for U.S. government debt. The CEA noted that stablecoin issuers’ Treasury holdings have grown large enough to surpass those of major sovereign holders such as Saudi Arabia, making the channel relevant for dollar ‘liquidity’ and Treasury market demand.

The analysis arrives as lawmakers debate how far to extend restrictions embedded in existing and proposed legislation. The CEA report explicitly addresses the GENIUS Act, which took effect in July 2025 and includes a provision barring stablecoin issuers from paying interest directly. However, the report points to what it describes as a loophole: intermediaries can still offer yield-like programs, such as Coinbase’s USDC rewards, even if issuers themselves are prohibited from distributing interest.

Some versions of the proposed CLARITY Act would attempt to close that intermediary pathway. The CEA’s conclusion is that tightening the ban further would still produce only marginal benefits for bank lending while increasing consumer welfare losses—effectively reducing user returns without meaningfully changing credit availability.

While the report does not frame its argument as a defense of yield-bearing stablecoins, it does send a clear message to policymakers: using an interest ban as a tool to protect bank lending may be an inefficient lever, particularly under today’s reserve-rich banking conditions and the reserve-asset composition typical among major stablecoin issuers. The broader implication, the CEA suggests, is that stablecoin regulation should focus less on symbolic deposit-protection theories and more on transparency, reserve quality, and the plumbing that links stablecoin markets to the Treasury ecosystem.