White House CEA Says Stablecoin Interest Ban Would Raise Bank Lending by Just 0.02%

The White House Council of Economic Advisers said banning all interest and yield payments on stablecoins would have only a limited effect on bank lending.

According to an analysis released by the CEA on September 15, banning interest payments would move about $54.4 billion from the roughly $300 billion stablecoin market into bank deposits. Even so, actual bank lending would increase by only $2.1 billion, or 0.02% of total loans.

The effect on regional banks would be even smaller. The CEA estimated the increase in lending at about $500 million, or 0.026% of total regional-bank loans. It said growth in stablecoins does not automatically lead to a drop in bank deposits because a substantial share of stablecoin reserves is invested in U.S. Treasuries and other assets, allowing those funds to recirculate into deposits within the financial system.

By contrast, the CEA estimated the annual loss in consumer welfare from an interest ban at about $940 million, while the benefit from increased lending would be about $140 million. That would leave a net annual welfare loss of $800 million, with costs amounting to 6.6 times the benefits.

The CEA said the increase in bank lending would reach $53.1 billion, or 4.4% of total loans, only if a series of extreme assumptions were applied. Those assumptions include the stablecoin market expanding to about six times its current size, all reserves being tied up in cash that cannot be used for lending, and the Federal Reserve abandoning its current ample-reserves framework.

The analysis serves as a White House rebuttal to banking-industry claims, made during debate over the Clarity Act, that stablecoin rewards could accelerate deposit outflows from regional banks.

"Banning stablecoin interest payments has a very small effect on protecting bank lending," the CEA said, concluding that the consumer cost of blocking competitive yield offerings is larger.