The White House did some math: How much more can banks lend out if stablecoin interest is banned?

Written & compiled by: KarenZ, Foresight News

Last summer, during U.S. Congress debates on the GENIUS Act, economist Andrew Nigrinis floated a number—if stablecoins could pay interest, bank loans could evaporate by $1.5 trillion.

That figure spread rapidly in Washington. Banking lobbying groups used it as an argument, some lawmakers cited it as a reason, and ultimately the bill added an explicit written prohibition: any stablecoin issuer may not pay interest or yield to holders. The logic is very straightforward—if you can earn more money on-chain, why keep deposits in banks? With fewer deposits, banks have fewer “bullets,” and borrowers end up suffering.

Sounds pretty reasonable, right?

However, the GENIUS Act does not explicitly restrict third-party platforms from offering interest-like returns. But some provisions in the currently proposed CLARITY Act attempt to plug this loophole.

In April this year, the White House Council of Economic Advisers (CEA) released a research report saying: wait, this claim might be a bit too much. The CEA directly rebutted this logic with a whole set of equilibrium models and reached a conclusion that may be unexpectedly different: banning stablecoin payouts has very little effect on protecting bank loans.

The number they calculated is: $210 million, not $1.5 trillion—almost 700 times lower.

Where does one dollar go after entering stablecoins?

The idea that “stablecoins siphon deposits” sounds vivid, but it skips a key step—after that money buys stablecoins, what does the issuer do with it?

The CEA breaks it down into three scenarios:

Scenario 1: The issuer turns the reserves into government bonds:

A user withdraws $1 from Bank A and buys stablecoins. The issuer receives this $1 and then, in turn, buys government bonds from a dealer. The dealer sells the government bonds and gets that $1, which is then deposited into Bank B. The final result: Bank A has $1 less in deposits, and Bank B has $1 more. The total amount of deposits in the entire banking system does not change; it’s only the “bank owner” that switches.

Scenario 2: The issuer deposits the reserves as cash into a bank, but the bank is required to hold 100% reserves:

Again, $1 enters the stablecoin system, and the issuer deposits it into Bank C. Bank C’s ledger deposits remain unchanged, but regulators require Bank C to offset this deposit using 100% central bank reserves—meaning this $1 is “locked,” and cannot be expanded into loans through a credit multiplier. This is the real, meaningful “loss of banks’ lending capacity.”

Scenario 3: Reserves flow into money market funds:

If the fund buys government bonds again, the logic returns to Scenario 1.

If the fund deposits cash into the Federal Reserve’s overnight reverse repurchase facility (ON RRP), this money becomes a liability of the Fed and is no longer commercial bank deposits—but the CEA points out that this phenomenon is common across the entire non-bank financial system, not unique to stablecoins.

Therefore, the core of the issue is not the total amount of deposits, but their structure—what proportion of stablecoin reserves truly ends up in that pocket of “100% reserves, not lendable”?

The CEA looks at this in detail. Currently, the two largest issuers in the market, Tether and Circle, together account for more than 80% of the stablecoin market share. When they receive users’ dollars, basically they do one main thing: buy short-term U.S. government bonds. Circle’s reserve report at the end of 2025 shows that 88% of USDC reserves are placed in government bonds and repurchase agreements, with only 12% held in the form of bank deposits. Tether is even more extreme: out of $147.2 billion in reserves, bank deposits are only $34 million—so small it doesn’t even amount to a fraction.

The only situation that would truly affect banks’ lending capacity is when issuers deposit reserves into banks and regulators require that bank to apply 100% reserves to that money. In other words, in Circle’s USDC reserves, only 12% goes through this path. The remaining 88% keeps circulating within the banking system.

Even if it leaks out, it must be caught by three layers of nets

Assume stablecoins no longer pay interest, and users start moving money back to banks. But for this capital to become actual bank loans, it still needs to pass through three checkpoints.

First checkpoint: How much money will truly flow back to banks? The report uses historical data of money market funds to calibrate the elasticity, estimating that in a baseline scenario, about $54.4 billion will move from stablecoins back to traditional deposits because yields go to zero. This number is already on the high side—among people holding stablecoins, a substantial portion aren’t holding them for yields; they want the speed of cross-border transfers, or a USD account that does not depend on the domestic banking system, so whether or not interest is paid has little impact on their decisions.

Second checkpoint: Of that $54.4 billion, how much truly changes banks’ lending capacity? Only 12% (in the case of USDC) of it—the portion that equals about $6.5 billion. The other 88% stays in the government bond market both before and after the ban, resulting in no net effect on banks’ lending capacity.

Third checkpoint: If $6.5 billion enters banks, can it all be lent out? No. Banks must hold reserves; currently, the effective reserve ratio in the U.S. banking system is about 30%, meaning only 70% is available as lendable funds. Moreover, the Fed is currently maintaining the “ample reserves” framework, and banks already hold more than $1 trillion in excess liquidity buffers. Therefore, for each additional $1 of lending capacity, ultimately less than 50 cents becomes actual loans, while the rest is absorbed by banks’ liquidity buffers of their own accord.

After passing through these three checkpoints, $54.4 billion becomes $210 million, only about 0.02% of total loans (about $12 trillion).

Then calculate the cost on the other side: stablecoin holders lose approximately a 3.5% annualized yield they would have earned, resulting in an annual net welfare loss of about $800 million per year.

In the words of the CEA, the cost-benefit ratio of this ban is 6.6—that is, the cost is 6.6 times the benefit, making it very uneconomical.

How was that $1.5 trillion figured out?

Since the White House’s model yields $210 million, where did the original $1.5 trillion come from?

The CEA traces it in the report. Nigrinis (2025)’s estimates directly borrow the model from Whited, Wu, and Xiao (2023), which was built for central bank digital currencies (CBDC). In that model, because CBDC is a liability of the Fed, it would directly pull deposits out of the commercial banking system; for each dollar that enters, bank loans would decrease by about 20 cents. Nigrinis applies this multiplier directly to the stablecoin scenario, and also assumes that after stablecoins offer competitive yields, they expand massively, ultimately estimating a $1.5 trillion contraction in loans.

The issue is that CBDC and stablecoins have an essential difference: CBDC is a liability of the central bank; when deposits go in, they leave the commercial banking system. But most stablecoin reserves, through government bond markets, still flow back into the commercial banking system. Nigrinis’s model does not track where this money goes; it only sees one bank’s deposits decrease, without observing another bank’s deposits increase.

This is the fundamental difference between partial equilibrium and general equilibrium analysis. Treating the loss of one bank as the loss of the entire system naturally leads to an error in magnitude.

Another账 left out

At the end of the report, it specifically highlights an effect that a model does not cover, but whose direction is the opposite: stablecoins’ offshore demand for U.S. Treasuries.

More than 80% of stablecoin transactions happen outside the U.S.; behind this are ordinary users in many currency-unstable countries using USD stablecoins as a savings instrument. This group supports real demand for U.S. Treasuries. IMF data shows that the amount of U.S. debt held by stablecoin issuers has exceeded that of Saudi Arabia. BIS research shows that every $3.5 billion in stablecoin fund inflows can lower the 3-month Treasury yield by 5 to 8 basis points. If the ban suppresses stablecoin adoption, this offshore demand channel will shrink, increasing the U.S. debt financing cost—and that cost could directly offset the incremental effect on bank lending.

So, what does all this really indicate?

It’s not that stablecoins have no impact on banks, but that the source of that impact is, to a large extent, not “whether they can pay interest.” The real key is how much of the stablecoin issuers’ reserves is put into that vault that must hold 100% reserves. If regulators in the future raise this proportion, the impact will start to become significant.

As for the ban on interest, the cost-benefit ratio for bank loans is 6.6; for the stablecoin ecosystem, what gets cut off is its ability to offer competitive yields to ordinary users; and for U.S. Treasury financing, the effect might even be reversed.

A piece of legislation with no obvious beneficiaries, yet with clear parties harmed—that’s exactly what makes this report truly thought-provoking.

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