White House Study Dismisses Stablecoin Risk

• Eliminating stablecoin yield increases bank lending by just $2.1B, or 0.02%.
• Most stablecoin reserves remain in banks, limiting impact on credit creation.
• Consumer access to competitive returns would be lost if yield were prohibited.

A new report from the White House Council of Economic Advisers (CEA) finds that banning stablecoin yield would have minimal effect on bank lending. The study shows that deposit flight concerns are smaller than expected.

Eleanor Terrett, reporting on Twitter, noted that Senate Banking lawmakers had pressed for the report last month. The study is part of the GENIUS Act framework for regulating stablecoins.

Stablecoin Yield and Bank Lending

The White House report examined how stablecoin yield affects bank lending under current rules. At baseline, eliminating yield would increase bank lending by $2.1 billion, or 0.02%. The study also finds a net welfare loss of $800 million.

Large banks would handle most of the extra lending, about 76%, while community banks would contribute the remaining 24%. Even under extreme assumptions, lending could rise by $531 billion, roughly 4.4% of total bank loans. The report notes that such scenarios are highly unlikely given current stablecoin and banking sizes.

The study confirms that a yield prohibition alone does little to increase lending. Most stablecoin reserves remain invested or redeposited, keeping the money in the banking system. Only a small share is fully restricted from lending.

Deposit Flight Concerns

The report also examines whether stablecoins could cause deposit flight from banks. It finds the risk is “quantitatively small,” with most stablecoin funds remaining within banking networks. Only a limited fraction of funds is held in ways that prevent banks from lending.

Eleanor Terrett shared that the study shows banning yield would remove consumer benefits without meaningfully boosting bank loans. Households could lose access to competitive returns on stablecoins. Meanwhile, deposit flows would largely remain neutral for lending activity.

The study notes that even large shifts into deposits would not force banks to cut back lending. Banks have ample reserves, which absorb changes in deposits. Thus, stablecoins do not present a systemic risk to credit under current conditions.

Reserve Management and Lending Capacity

The GENIUS Act requires stablecoin issuers to hold reserves backing each token one-to-one. These reserves include cash, insured bank deposits, short-term Treasuries, and reverse repurchase agreements. Most issuers invest in Treasuries, which are often redeposited in banks.

This redepositing process allows banks to maintain lending capacity. Only reserves held in cash or narrow banking structures are fully restricted from lending. As a result, stablecoins mostly preserve credit availability in the banking system.

The CEA report concludes that the composition of reserves is the main factor affecting lending. Stablecoin growth does not remove deposits from banks in ways that significantly affect loans. Banks can continue to lend even as stablecoin adoption increases.

Yield Prohibition Effects

The report analyzes how banning stablecoin yield affects household portfolios and bank loans. Removing yield shifts funds slightly back into deposits but only affects lending minimally. Only a small fraction of deposits locked under full-reserve rules is restricted from credit creation.

Consumers would lose access to competitive returns if the yield were prohibited. At the same time, bank lending would not increase significantly. The study also notes that monetary policy and abundant bank reserves absorb most deposit movements without shrinking loans.

The findings indicate that stablecoins pose limited risk to bank lending. Policymakers can consider consumer benefits while monitoring systemic risk.