A prohibition on paying interest or yield on payment stablecoins would do “very little” to protect bank lending “while forgoing the consumer benefits of competitive returns on stablecoin holdings,” according to a new report by the White House Council of Economic Advisors.
The Genius Act prohibits interest payments on payment stablecoins, but the American Bankers Association and others have raised concerns about a potential loophole that would allow issuers to circumvent the prohibition through third-party rewards. The council report is only the latest to explore the potential effects of allowing stablecoin interestment payments: The Treasury Department has estimated that $6.6 trillion in bank deposits could be at risk. ABA has called on lawmakers to use the proposed Clarity Act to close the loophole and shared a state-by-state breakdown of potential deposit outflows if the change is not made.
The council, using its own model, estimated that eliminating the prohibition would only increase bank lending by $2.1 billion, or 0.02%. Most of that lending would go to large banks rather than banks with less than $10 billion in assets. The report did not measure or evaluate the negative impact on bank lending if stablecoin yield were allowed.
“The yield prohibition in the Genius Act — and its proposed reinforcement through the Clairty Act — may be motivated by the concern that competitive stablecoin returns will draw deposits out of the banking system and contract lending. Our model shows that this concern is quantitatively small,” the report concludes.
