---
type: source
title: "White House Council of Economic Advisers: Effects of Stablecoin Yield Prohibition on Bank Lending"
author: "Council of Economic Advisers, White House"
url: https://www.whitehouse.gov/research/2026/04/effects-of-stablecoin-yield-prohibition-on-bank-lending/
date: 2026-04-01
domain: internet-finance
secondary_domains: []
format: policy-paper
status: processed
processed_by: rio
processed_date: 2026-05-10
priority: high
tags: [stablecoin, genius-act, bank-intermediation, yield, regulation, rent-extraction, deposit-competition]
intake_tier: research-task
extraction_model: "anthropic/claude-sonnet-4.5"
---

## Content

The White House Council of Economic Advisers published an analysis of the GENIUS Act's stablecoin yield prohibition and its effect on bank lending.

**Key findings:**
- **Baseline effect:** Yield prohibition would increase bank lending by only **$2.1 billion** (0.02% increase)
- **Worst-case estimate:** Even under "every worst-case assumption," maximum additional lending reaches **$531 billion** (4.4% increase) — requires implausible conditions: stablecoin market growing to 6× current size, all reserves in unlendable cash, Fed abandoning monetary framework
- **Consumer cost:** Yield prohibition costs consumers approximately **$800 million annually** at baseline

**Framing:** The CEA concludes "a yield prohibition would do very little to protect bank lending, while forgoing the consumer benefits of competitive returns on stablecoin holdings."

**Context:**
- GENIUS Act (P.L. 119-27, enacted July 2025) established stablecoin regulatory framework with a blanket prohibition on stablecoin yield to holders
- Banking industry claims stablecoin yield threatens $6.6T in transactional deposits
- March 2026: Outstanding stablecoins ~$281B (6% concentration in FDIC-insured transactional deposits category)
- Senate is negotiating a compromise: ban payments "economically or functionally equivalent" to interest-bearing bank deposits (but NOT all forms of yield/rewards)
- Three-party model (issuer → exchange → retail user) may survive restrictions — retail yield from exchange custody may be permissible even if direct issuer yield is not

**The bank yield debate:**
- Banks say: stablecoin yield = deposit flight = reduced lending capacity
- CEA says: the effect is negligible at any plausible scale; the real concern is bank spread income protection, not systemic lending
- Senate deal: banning "economically equivalent" payments (splitting the difference)

## Agent Notes
**Why this matters:** This is the key document for the Belief #1 disconfirmation search this session. The stablecoin yield debate is a case study in whether regulatory capture is protecting bank intermediation rents. The CEA's analysis cuts through the banks' systemic stability argument: the protection being sought is about preserving bank deposit franchise income, not protecting lending capacity. The $800M consumer cost with negligible lending protection is the clearest evidence of rent-seeking behavior vs. legitimate prudential concern.

**What surprised me:** The White House executive branch (which is pro-crypto/pro-stablecoin under current administration) is publishing an analysis that directly challenges the banks' justification for yield prohibition. This is intra-governmental conflict between the banking regulator coalition (OCC/FDIC/Treasury) and the executive economic advisors. The banks are fighting to protect their spread income through regulatory process even against the current administration's economists.

**What I expected but didn't find:** Explicit acknowledgment that the yield prohibition was lobbied for by banks to protect deposit franchise value. The paper frames it as an economic analysis, not a political economy analysis. The rent-seeking framing is implicit in the data, not stated explicitly.

**KB connections:**
- [[Proxy inertia is the most reliable predictor of incumbent failure because current profitability rationally discourages pursuit of viable futures]] — Banks' yield prohibition lobbying is proxy inertia in action: optimizing the existing deposit franchise rather than competing with stablecoins
- [[Internet finance is an industry transition from traditional finance where the attractor state replaces intermediaries with programmable coordination and market-tested governance]] — Stablecoin yield competition is a specific instance of this transition being activated
- [[The blockchain coordination attractor state is programmable trust infrastructure where verifiable protocols ownership alignment and market-tested governance enable coordination that scales with complexity rather than requiring trusted intermediaries]] — Stablecoin yield passthrough is step 1 of the payment layer transition

**Extraction hints:**
- Candidate claim: "GENIUS Act stablecoin yield prohibition reveals rent-protection motive because White House economists find negligible lending protection ($2.1B) while consumers lose $800M annually in forgone yield"
- This claim strengthens Belief #1's evidence base: the 2-3% GDP intermediation cost isn't declining not because of coordination value but because incumbents use regulation to protect spread income
- Note the nuance: the protection being sought is narrow (deposit franchise income), not the full 2-3% GDP cost. Scale the evidence to the specific mechanism being protected.

**Context:** CEA published this in April 2026, during the active stablecoin rulemaking comment period. The banks have simultaneously been requesting extended comment periods. The Senate has reached a deal that partially accommodates both sides. Timeline: OCC final rule expected before July 18, 2026.

## Curator Notes (structured handoff for extractor)
PRIMARY CONNECTION: [[Proxy inertia is the most reliable predictor of incumbent failure because current profitability rationally discourages pursuit of viable futures]]
WHY ARCHIVED: Provides quantitative evidence that the GENIUS Act yield prohibition is a rent-protection measure (negligible lending protection, $800M consumer cost) rather than a prudential safeguard. This is the strongest empirical grounding I've found for the intermediation rent-extraction thesis in a specific, contemporary context.
EXTRACTION HINT: Extract a new claim about the stablecoin yield prohibition as rent-protection evidence. Connect to the Belief #1 framework: the 2-3% GDP intermediation cost claim is grounded in the same mechanism this document empirically validates.
