White House: Stablecoin Yield Ban Impacts Bank Lending
The recent enactment of the GENIUS Act in July 2025 has brought significant changes to the landscape of stablecoin regulation in the United States. This legislation mandates that stablecoin issuers maintain reserves that back outstanding stablecoins on a one-to-one basis.
Key Provisions of the GENIUS Act
The act specifies the types of assets that can be used as reserves. These are:
- U.S. dollars
- Federal Reserve notes
- Funds in certain insured depository institutions
- Short-term Treasuries
- Treasury-backed reverse repurchase agreements
- Money market funds
Importantly, the GENIUS Act prohibits stablecoin issuers from offering any interest or yield on stablecoin holdings. However, it does not prevent third parties from providing yield-bearing products. Proposals like the CLARITY Act seek to address this loophole.
Impact on Bank Lending
One of the primary reasons for the ban on yield is the concern that offering competitive returns could draw funds away from traditional bank accounts to stablecoin tokens. This could lead to a significant decline in bank lending, which some analyses suggest could reach trillions of dollars.
A recent model evaluation indicates that the removal of stablecoin yield may increase bank lending by approximately $2.1 billion, with a net welfare cost of around $800 million. This change represents an increase of 0.02% in total lending, with a favorable cost-benefit ratio of 6.6.
Distribution of Lending Increases
Large banks would account for 76% of the additional lending, while community banks, defined as those with assets below $10 billion, would contribute the remaining 24%. This translates to an estimated $500 million boost in lending from community banks, leading to a 0.026% rise in their lending activities.
Worst-Case Scenarios and Lending Potential
Under extreme assumptions, the total increase in aggregate lending could reach $531 billion, equating to a 4.4% rise in bank loans by the fourth quarter of 2025. However, this would necessitate the stablecoin market growing to six times its current size relative to total deposits, all reserves being held in non-lendable cash, and the Federal Reserve altering its monetary policy framework.
Even in such unlikely scenarios, community bank lending would only increase by $129 billion, translating to a 6.7% rise.
Conclusion
The implications of the GENIUS Act are substantial. While it aims to stabilize traditional banking by prohibiting yields on stablecoins, the overall impact on bank lending may be minimal. Moreover, this prohibition limits potential consumer benefits associated with competitive returns on stablecoin investments.
