CLARITY Act Stablecoin Yield Ban Would Do Little for the Banking Industry

The White House Council of Economic Advisers (CEA) has released a report finding that banning stablecoin yield would increase bank lending by just $2.1 billion while costing consumers roughly $800 million in lost welfare. The findings directly challenge months of banking industry warnings that stablecoin rewards would trigger a mass exodus of deposits from the traditional financial system.

The report arrives at a critical moment for the CLARITY Act, a proposed U.S. law designed to create a federal regulatory framework for digital assets, and is expected to reshape ongoing negotiations between banking and crypto lobbyists in the Senate.

What Is the CLARITY Act and Why Does the Yield Debate Matter?

The CLARITY Act is a proposed U.S. market structure bill for digital assets. It builds on the GENIUS Act, which was signed into law in July 2025 and already requires stablecoin issuers to hold reserves backing outstanding stablecoins on a one-to-one basis.

Under the GENIUS Act framework, stablecoin issuers cannot pay yields directly on balances. The CLARITY Act debate centres on a different question: whether third-party crypto firms, such as Coinbase, can distribute stablecoin rewards to their customers through affiliate or external arrangements.

Banks have pushed hard for language in the CLARITY Act that would close this channel entirely. Their core argument has been that if stablecoins offer competitive returns, households will move money out of bank accounts and into tokens, shrinking the deposits banks rely on to issue loans.

What Did the White House Report Actually Find?

The CEA built a model using current market conditions to test the banking industry's claims. The results were decisive.

At baseline calibration, eliminating stablecoin yield:

• Increases bank lending by $2.1 billion, which equals a 0.02% rise in total loans
• Produces a net welfare cost of $800 million, meaning the harm to consumers outweighs the benefit to the banking system
• Results in a cost-benefit ratio of 6.6, where every dollar gained in additional lending costs the broader economy $6.60

The report also broke down who would benefit from that additional lending. Large banks would conduct 76% of it, adding around $1.6 billion. Community banks, defined as those with assets below $10 billion, would provide the remaining 24%, equal to roughly $500 million, representing a 0.026% rise in their lending.

These figures are far smaller than the $6.6 trillion in deposit outflows that banking industry voices had projected.

Does the Worst-Case Scenario Change the Picture?

The CEA also stress-tested its model by stacking every pessimistic assumption at once. Even in that extreme scenario, the numbers remain modest by historical financial standards.

The model produced $531 billion in additional aggregate lending, which represents a 4.4% increase in bank loans as of the fourth quarter of 2025. But reaching that figure requires three conditions that do not reflect today's reality:

• The stablecoin market grows to roughly six times its current size as a share of bank deposits
• All stablecoin reserves are held in unlendable segregated cash rather than short-term Treasuries
• The Federal Reserve abandons its current ample-reserves monetary framework

Even under those conditions, community bank lending would rise by only $129 billion, a 6.7% increase. The report noted that the conditions required to produce a positive welfare effect from prohibiting yield are "similarly implausible."

One important technical point from the CEA: stablecoin reserves do not disappear from the banking system. Most reserves recirculate as ordinary bank deposits. Only the portion held in direct bank accounts, estimated at around 12% of reserves, is truly locked out of the credit multiplier that drives lending.

Why This Report Matters for the CLARITY Act's Future

The release adds significant pressure to an already tense legislative standoff. The Senate Banking Committee had kept its markup of the CLARITY Act on hold while banking and crypto industry representatives attempted to reach an agreement on the yield provision.

Senators Thom Tillis, Bill Hagerty, and Cynthia Lummis had reportedly pushed the White House for weeks to release the report to inform those negotiations.

U.S. Treasury Secretary Scott Bessent added further weight to the push for legislation. In an op-ed published in the Wall Street Journal, Bessent argued that regulatory uncertainty had already pushed crypto development toward jurisdictions with clearer rules, specifically naming Abu Dhabi and Singapore. The House of Representatives passed its version of the CLARITY Act in July.

How Big Could the Stablecoin Market Become?

Stablecoin transaction volumes reached approximately $28 trillion in 2025. Chainalysis estimates that figure could rise to $719 trillion by 2035, which would require a compound annual growth rate of roughly 133% sustained over a decade.

Some projections go further. Rachael Lucas, a crypto analyst at Australian exchange BTC Markets, told Cointelegraph that a ceiling-case scenario could reach $1.5 quadrillion. She was careful to frame this as a high-end possibility rather than a base case.

Lucas noted that stablecoin volume measures how many times money moves, not how much exists. A single dollar can settle dozens of transactions in a day, which explains why volume figures can exceed the total value of underlying assets by a wide margin.

For context, global remittance flows were estimated at $905 billion in 2024. The World Population Review estimates total global assets across banks, property, and cash at around $662 trillion, below even the base-case projection for stablecoin volumes by 2035.

Conclusion

The White House CEA report gives Congress a quantitative basis for resolving the stablecoin yield dispute. Under current market conditions, the data shows that banning stablecoin rewards would produce minimal gains for bank lending while imposing measurable costs on consumers. 

Producing the large lending effects the banking industry has warned about requires assumptions that do not reflect how the financial system operates today. With the CLARITY Act stalled in the Senate and Treasury Secretary Bessent publicly urging passage, the report is likely to shift the terms of negotiation in a direction more favourable to crypto firms seeking to distribute stablecoin rewards to their users.

Resources 

1. Report by White House Council of Economic Advisers: Effects of Stablecoin Yield Prohibition on Bank Lending

2. Op-ed by Scott Bessent: Digital Asset Rules Need Clarity

3. Report by Reuters:

4. Report by Crypto In America: White House Report Finds Stablecoin Yield Poses Limited Risk to Banks

5. Report by Chainalysis: The $100 Trillion Wealth Shift: Stablecoin Utility and the Future of Payments

6. Report by CoinTelegraph: Chainalysis claims stablecoin volumes could reach $1.5 quadrillion by 2035