Stablecoin Yields and Banking Risks

The study suggests that restricting stablecoin yields would only lead to marginal gains for banks. According to the base case, eliminating these yields could increase lending by approximately $2.1 billion, representing a mere 0.02% of total loans. However, this move could also impose a net welfare cost on consumers.

Industry Concerns and Competing Views

Despite the report’s findings, banks and industry groups warn that stablecoins could drain significant deposits should they offer competitive returns. The Independent Community Bankers of America estimates potential losses of $1.3 trillion in deposits and $850 billion in reduced lending. Meanwhile, executives from major banks such as Bank of America and JPMorgan urge regulators to apply bank-like rules to stablecoin yields.

The CEA counters these concerns, noting that most stablecoin reserves remain within the banking system, often reinvested in Treasurys or other deposits. This limits the potential for a substantial shift away from traditional balance sheets.

Regulatory Debates on Stablecoins

The ongoing discussions about stablecoin legislation have accelerated in Washington. Regulators are working on implementing provisions from the GENIUS Act, mandating one-to-one reserve backing and prohibiting issuers from directly paying yields. The FDIC has proposed a new framework for supervising stablecoin issuers, while negotiations over the Clarity Act are nearing completion.

The report concludes that prohibiting yields would do little to protect bank lending while foregoing consumer benefits from competitive returns on stablecoin holdings. It highlights the need for a balanced approach that considers both industry concerns and consumer welfare.

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