Karla Barker 
White House Analysis Questions Stablecoin Regulation Assumptions
A recent White House economic report is making policymakers reconsider some basic assumptions about stablecoin regulation. The Council of Economic Advisers, which advises the President directly, released findings last week that challenge the idea that banning stablecoin yields would significantly protect bank lending.
The study looked at proposals like the GENIUS Act and CLARITY Act, which aim to restrict stablecoin yields to prevent deposit outflows from traditional banks. The thinking behind these proposals is that if stablecoins offer competitive returns, people might move their money out of banks, weakening the banks’ ability to lend.
But the analysis suggests this concern might be overblown. The report found that stablecoin reserves don’t really leave the banking system—they mostly just circulate within it.
How the Money Actually Flows
When people convert bank deposits into stablecoins, issuers typically put that money into short-term Treasury bills and similar assets. Here’s where it gets interesting: that money then flows back into banks through dealer deposits and related channels. So the funds aren’t disappearing from the system—they’re just moving around within it.
The report states that only about 12% of stablecoin reserves end up in bank deposits that could be subject to full-reserve treatment. That’s the only portion that might be effectively removed from supporting lending activities. The other 88% or so keeps circulating through the banking system.
I think this is important because it shows how interconnected these systems are. Money doesn’t just vanish when it moves into stablecoins—it finds its way back into the banking ecosystem through different routes.
The Numbers Tell a Different Story
The actual lending impact predicted by the model is surprisingly small. Under baseline conditions, eliminating stablecoin yield would increase bank lending by about $2.1 billion. That sounds like a lot until you realize it’s only 0.02% of total loans.
To get lending effects in the hundreds of billions, the report says you’d need to make some pretty unrealistic assumptions. You’d have to assume the stablecoin market share grows six times larger, all reserves shift into segregated deposits, and the Federal Reserve completely changes its approach to reserves.
The report puts it bluntly: “It takes similarly implausible assumptions for the welfare effect of yield prohibition to turn positive.”
What This Means for Policy
These findings come at an interesting time. There’s been a lot of discussion about how to regulate stablecoins, with concerns about their potential impact on traditional banking. But this analysis suggests those concerns might be exaggerated, at least when it comes to lending capacity.
It’s worth noting that banks might not even use any additional lending capacity for new loans. The report mentions that banks could just absorb it into their liquidity buffers instead. So even if there were more capacity, it might not translate to more lending.
This doesn’t mean stablecoin regulation isn’t important—there are plenty of other considerations around consumer protection, financial stability, and market integrity. But it does suggest that the lending argument might not be as strong as some policymakers thought.
The White House connection here is significant. When the Council of Economic Advisers publishes something like this, it’s likely to influence ongoing policy discussions. It provides a data-driven perspective that challenges some of the assumptions driving current legislative proposals.
What happens next will be interesting to watch. Will this analysis change the conversation around stablecoin regulation? Or will policymakers focus on other aspects beyond lending impacts? Either way, having this kind of economic analysis in the mix is probably a good thing for making informed decisions.