White House CEA: Banning Stablecoin Interest Would Only Marginally Increase Bank Lending

The White House Council of Economic Advisers (CEA) has stated that banning interest and revenue payments on stablecoins would have only a limited impact on increasing bank lending.

According to a report released by the CEA on May 15, if interest payments on stablecoins were banned, approximately $54.4 billion of the roughly $300 billion stablecoin market could shift to bank deposits. However, actual increases in bank lending would amount to only $210 million, representing just 0.02% of total lending.

Regional bank lending increases would be even smaller, estimated at around $500 million or 0.026% of total regional lending. The CEA explained that a significant portion of stablecoin reserves are invested in U.S. Treasury bonds and other instruments, meaning funds would circulate back into deposits within the financial system rather than directly reducing bank deposits.

While consumer welfare losses from banning interest payments were estimated at $940 million annually, the benefits from increased lending would be about $140 million, resulting in a net annual welfare loss of $800 million. The costs outweighed the benefits by 6.6 times.

The CEA noted that for bank lending increases to reach $531 billion or 4.4% of total loans, extreme assumptions would be required, such as the stablecoin market growing sixfold and all reserves being locked in cash without being used for lending, alongside the Federal Reserve abandoning its current ample reserve system.

The analysis appears to counter arguments from banks that stablecoin rewards could drive deposits out of regional banks, which has been part of discussions around the Clarity Act.