Council of Economic Advisers Paper Analyzes Yield Ban on Payment Stablecoins Under GENIUS Act

Yield Ban Projected to Yield Minimal Bank Lending Gains The Council of Economic Advisers released a 21-page paper on April 8 modeling the effects of barring payment stablecoin issuers from paying yield.

02% of a 12 trillion dollar loan book. 6 in which lost yield outweighs gains from slightly lower borrowing costs. The paper is tied to the 2025 GENIUS Act's prohibition on interest for payment stablecoins.

The GENIUS Act is the 2025 law that created the first federal regime for payment stablecoins and hard-coded a ban on issuers paying yield to holders. That ban does not extend to third-party platforms, leaving room for arrangements such as Coinbase’s USDC rewards, which share reserve income with users at rates similar to high-yield savings accounts.

The White House paper states that when consumers move cash into stablecoins, issuers reinvest reserves into Treasury bills, repos, and money-market funds, sending most of the money back into the banking system.

That reshuffling means aggregate deposits stay largely flat, and the model finds little system-wide constraint on lending. 1 trillion dollars in excess liquidity.

American Bankers Association Challenges CEA Analysis The American Bankers Association fired back on April 13, arguing the CEA framed the wrong question by focusing on the effect of a prohibition rather than the impact of allowing yield as the market grows.

ABA chief economist Sayee Srinivasan and banking research VP Yikai Wang warned that yield-paying payment stablecoins could accelerate deposit migration out of insured accounts, especially at community banks. Their analysis points to a future market of 1 to 2 trillion dollars in payment stablecoins.

In that scenario, even single states could see multi-billion-dollar contractions in bank lending as cheap funding drains away.

Those higher funding costs translate into less local credit and higher loan rates for households, farmers, and small businesses that rely on relationship lenders.

Broader Context of Stablecoin Market Dynamics More than 80% of stablecoin activity is already offshore and issuers hold Treasury portfolios larger than some sovereigns.

ZeroHedge reported on these market dynamics in relation to the CEA paper and ABA response. The CEA model assumes reinvestment of stablecoin reserves keeps funds circulating within the banking system, limiting overall lending impacts. The ABA counters that growth in yield-bearing stablecoins could disrupt this balance, particularly for smaller banks.