Key Highlights
- The Council of Economic Advisers finds banning stablecoin yields would boost bank lending by just $2.1B (0.02%) while causing an $800M net loss to consumers. Deposit flight fears are overstated as most reserves stay in the banking system.
- Signed in July 2025, the GENIUS Act created the first federal framework for payment stablecoins, requiring 1:1 liquid reserves, disclosures, audits, and AML compliance. It bars issuers from paying direct yield, yet ambiguity over exchanges offering it has fueled bank lobbying to close the loophole.
- The Digital Asset Market Clarity Act (CLARITY Act) passed the House with strong bipartisan support in July 2025. Senate progress stalled in early 2026 due to negotiations over stablecoin yield provisions, including proposals to ban passive holding yields while allowing some activity-based rewards.
A new White House economic analysis has cast doubt on one of the core arguments for tightening restrictions on stablecoin yields, concluding that a full ban would deliver only a negligible boost to bank lending while costing consumers hundreds of millions in lost returns.
The Council of Economic Advisers study, released Wednesday, examined the potential effects of prohibiting yield on stablecoins under the framework set by last year’s GENIUS Act.
Lawmakers and banking groups have pushed for stricter rules, warning that interest-bearing stablecoins could siphon deposits away from traditional banks and curb lending to businesses and consumers.
Instead, the report finds those fears overstated. Most stablecoin reserves remain parked in the banking system, meaning the shift has limited impact on overall lending capacity. Under baseline assumptions, eliminating yield would increase bank lending by just 0.02%, or roughly $2.1 billion — a drop in the bucket for the U.S. economy.
The analysis also tallies a net welfare loss of about $800 million, largely from forgoing competitive returns that stablecoin holders currently enjoy. Large banks would capture the lion’s share of any modest lending gains, while community banks would see almost no benefit.
“Beyond the technological benefits of stablecoins, one of the key drivers of adoption is yield, since issuers can pass through returns on their reserve portfolios, making stablecoins competitive with high-yield savings accounts and more attractive than conventional deposits on a yield basis,” the report states.
The GENIUS Act: Foundation for stablecoin regulation
The GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins Act), signed into law in July 2025, marked the first major federal framework for payment stablecoins. It requires 1:1 backing with liquid reserves such as cash, short-term Treasuries, and insured deposits, along with monthly disclosures, audits for larger issuers, and compliance with anti-money laundering rules.
The law explicitly bars stablecoin issuers from paying direct interest to holders but left ambiguity around whether exchanges or platforms could offer yield or rewards on stablecoin balances. Banking industry groups have since lobbied to close this perceived loophole, arguing it could drain deposits from the traditional system.
CLARITY Act: The broader market structure debate
The current yield debate is playing out within efforts to pass the Digital Asset Market Clarity Act of 2025, known as the CLARITY Act. This companion legislation aims to provide comprehensive regulatory clarity for the wider digital asset market by dividing assets into categories: securities (under SEC oversight), digital commodities (under CFTC oversight), and permitted payment stablecoins.
The CLARITY Act originated in the House, where it passed with strong bipartisan support (294-134) in July 2025 as part of “Crypto Week.” It builds on earlier efforts like the FIT21 bill from 2024 and seeks to end years of “regulation by enforcement” by clearly defining when tokens transition from investment contracts to commodities based on decentralization.
The bill has faced a rockier path in the Senate. After referral to the Senate Banking Committee, markup sessions were delayed multiple times in early 2026 amid heated negotiations over stablecoin provisions—particularly the treatment of yield and rewards.
A key sticking point has been language that would ban passive yield paid simply for holding stablecoins, while potentially allowing activity-based rewards tied to transactions or platform use.
Ongoing congressional tension
Critics of a broader ban argue it could stifle innovation in digital payments without delivering meaningful protections for the traditional banking sector. The CEA data appears to bolster that view, suggesting the trade-off may not be worth it.
The findings come amid ongoing debates in Congress over closing perceived loopholes that allow exchanges to offer yield on stablecoin holdings, even as issuers themselves are barred under the GENIUS Act. Senate Banking Committee members had pressed the White House for the study’s release.
As lawmakers continue refining the CLARITY Act, the White House analysis adds fresh evidence to arguments that restricting yield may deliver minimal benefits to banks while harming consumer adoption of stablecoins as competitive payment and savings tools.
Also read: SEC Admits Crypto Missteps, Signals Enforcement Reset Under Atkins
