Effects of Stablecoin Yield Prohibition on Bank Lending

This executive summary from the Council of Economic Advisers (CEA) analyzes the impact of the GENIUS Act (July 2025) and the proposed CLARITY Act, specifically focusing on the federal prohibition of "yield" or interest payments on stablecoins.The Policy ContextThe GENIUS Act requires stablecoins to be backed 1:1 by high-quality liquid assets (USD, Treasuries, etc.). It prohibits issuers from offering yield to holders, based on the concern that competitive stablecoin returns would drain deposits from traditional banks—which use fractional reserve lending—thereby crippling the national lending market.Key Findings of the CEA ModelThe CEA model challenges the theory that prohibiting yield protects the banking sector, finding the benefits to be negligible and the costs high:Minimal Impact on Lending: In the baseline model, eliminating stablecoin yield increases bank lending by only $2.1 billion (a mere 0.02% increase).High Welfare Cost: The prohibition results in a $800 million net welfare cost to the economy, representing a poor cost-benefit ratio (6.6).Community Banks: The model shows that community banks (assets under $10 billion) would see an insignificant lending increase of just $500 million (0.026%).Implausible "Worst-Case" Figures: Even using extreme, unlikely assumptions—such as the stablecoin market growing sixfold and the Federal Reserve abandoning its current monetary framework—aggregate lending would only rise by 4.4%.ConclusionThe CEA concludes that prohibiting stablecoin yield does very little to "protect" bank lending. Instead, the policy primarily serves to deny consumers the benefits of competitive returns while incurring significant economic welfare losses. The report suggests that the fear of a stablecoin-driven "lending crisis" is unsupported by economic modeling.