White House Model Debunks Stablecoin Yield Ban – Tiny Bank Boost, Big Consumer Cost

• The White House’s cost-effective analysis estimated a $2.1 billion increase in lending, equivalent to about 0.02% of total bank loans.
• The policy could impose a net welfare cost of roughly $800 million, according to the analysis.
• Even under extreme assumptions, the projected increase in lending remains relatively modest at around $531 billion, or about 4.4%. 
  The White House on Wednesday pushed back against the banking industry’s narrative that allowing stablecoins to offer yield would undermine bank lending or lead a deposit flight.

The Trump administration’s cost-effective analysis (CEA) concluded that restricting stablecoin yield may come with economic costs while delivering limited benefits to the traditional financial system. 

According to its baseline model, banning stablecoin yield would increase bank lending by just $2.1 billion, equivalent to roughly 0.02% of total lending. At the same time, the policy would carry a net welfare cost of about $800 million, implying limited economic upside. Large banks would account for roughly 76% of the incremental lending, while community banks would contribute the remaining 24%, or about $500 million.

“In short, a yield prohibition would do very little to protect bank lending, while forgoing the consumer benefits of competitive returns on stablecoin holdings,” the report said.

Worst-Case Assumptions Still Show Limited Impact

Even the most aggressive model by the White House showed that in a worst-case scenario, prohibiting stablecoin yield could boost aggregate lending by up to $531 billion, or about 4.4%. Community bank lending would rise by about $129 billion, or 6.7%. 

However, the White House described those conditions as “highly unlikely.” The model assumes the stablecoin market expands to roughly six times its current size relative to deposits, reserves remain entirely in non-lendable cash rather than Treasuries, and the Federal Reserve abandons its existing monetary framework.

“One rationale for prohibiting yield is that if stablecoins were to offer competitive returns, households may shift dollars out of traditional bank accounts,” the analysis noted, but added that a blanket prohibition cannot be justified, taking broader economic trade-offs into account. 

The Stablecoin Yield Debate

The GENIUS Act, signed into law last year in July, requires stablecoin issuers to fully back tokens on a one-to-one basis using approved reserve assets such as U.S. dollars, short-term Treasuries, and regulated deposits. The law also prohibits issuers from directly offering interest or yield to token holders, though it leaves room for third-party or affiliate structures that could provide returns.

The latest versions of the proposed CLARITY Act seek to close that gap entirely. The CLARITY Act draft was scheduled to be tabled in the Senate for discussion in January, but has been caught in a tug-of-war between the cryptocurrency and banking industries over the stablecoin yield debate.

Coinbase (COIN) CEO Brian Armstrong and others have argued that imposing a blanket on stablecoin yields would stifle industry expansion and deter user growth. It would also reduce the dominance of the dollar in the stablecoin arena. Coinbase has a 50-50 revenue-sharing agreement with Circle Internet Group (CRCL) on the use of the USDC stablecoin (USDC). 

COIN’s stock rose nearly 5% in pre-market trade, while CRCL’s stock jumped over 7% amid broader strength in the cryptocurrency and equities markets on President Donald Trump’s ceasefire announcement. Retail sentiment around both companies on Stocktwits trended in ‘bearish’ territory over the past day. 

Meanwhile, retail sentiment around USDC trended in ‘extremely bullish’ territory over the past day, accompanied by chatter at ‘extremely high’ levels. 

Read also: Adam Back Denies He’s Satoshi Nakamoto, Says It’s ‘Coincidence And Similar Phrases’

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