As everyone expected, an investigative report published by the Trump administration Council of Economic Advisers (CEA) shows that stablecoin yield will not affect lending in any way.
FUD promoted by banks never had any merit, but it was a great demonstration of the power of lobbying and money in the legislative process. Elected officials are too easily swayed by fear mongering and PAC money. Unfortunately this is late CLARITY ActCrypto market infrastructure bill that will help propel the US financial industry to greater dominance.
As the White House stated, GENIUS ActThe law approving payment stablecoins prohibits stablecoin issuers from offering interest or returns to their holders. but it does not stop third-party agreements that may offer interest-bearing products. Since the technology exists to automate this process, yield should actually be part of the stablecoin equation, other than rogue banks fearing competition.
Challenging the bank’s pyrrhic argument Council of Economic Advisers the report states:
“In short, a yield ban would do little to protect bank lending while foregoing the consumer benefits of competitive yields on stablecoin assets.”
The report concludes:
“The yield ban in the GENIUS Act – and the proposed reinforcement through the CLARITY Act – perhaps stems from concerns that competitive stablecoin yields will drain deposits from the banking system and contracted loans. Our model shows that this concern is quantitatively small. Most stablecoin reserves recirculate within the banking system as ordinary deposits: only the 12% held in bank accounts is actually excluded from the credit multiplier (if banks impose 100% reserve requirements), and even this portion goes further than Prudential reserve weakened by requirements and voluntary bank liquidity buffers. In the baseline calibration, eliminating the stablecoin yield increases bank lending by $2.1 billion, which would require hundreds of billions of dollars in lending to simultaneously assume stablecoin shares and the Federal Reserve abandons the broad reserve framework.
If stablecoin returns are blocked by traditional banks, this will harm the development of the entire financial services industry. The CLARITY Act aims to provide rules for all crypto industry participants, including banks currently transitioning to the stablecoin sector.
Meanwhile, some crypto firms are seeking bank deals. Some will inevitably offer deposit-backed loans.
These lines will continue to blur, and the best option for bank officers is to accept the change and adapt. History shows that those left behind who fail to recognize the inevitable tend to go there and die.
At the same time, a yield-generating dollar-based stablecoin would help boost the dollar as the world’s reserve currency, driving global demand. Once again, this is a good thing for everyone, including banks.
You can’t forget the fact that U.S. consumers and businesses will win, too. These are the elements that policymakers should focus on. Unfortunately, some are not, and these Senators or Representatives should be expelled from Congress for failing to understand the obvious.
Stablecoin yield and the broader digital asset ecosystem could propel the financial industry in the US to new heights and dominance. Since finance is one of the most important industries in the United States, all policymakers need to support these innovations.
Let’s hope the Senate Banking Committee, where the CLARITY Act is mired in pointless debate, now moves forward. Even once the law is signed, full enactment will take time, so it is better to start now.
You can access the White House’s report titled The Effects of the Stablecoin Yield Ban on Bank Loans below.
