Executive Summary
The GENIUS Act, signed into law in July 2025, requires stablecoin issuers to maintain reserves backing outstanding stablecoins on at least a one-to-one basis. Reserves may only consist of certain specified assets, including US dollars, federal reserve notes, funds held at certain insured or regulated depository institutions, certain short-term Treasuries and Treasury-backed reverse repurchase agreements, and money market funds. It also prohibits stablecoin issuers from offering any form of interest or yield to stablecoin holders, but does not explicitly prohibit affiliate or third-party arrangements that might offer interest-bearing products. Some variants of the proposed CLARITY Act would close this channel. One rationale for prohibiting yield is that if stablecoins were to offer competitive returns, households may shift dollars out of traditional bank accounts and into tokens. Since stablecoin reserves are fully backed rather than fractionally lent, this could reduce bank lending. Some analyses estimate the effect on lending in the trillions of dollars (Nigrinis 2025). We build a simple model to evaluate these claims.
At baseline calibration of CEA's model, eliminating stablecoin yield:
- Increases bank lending by $2.1 billion and has a net welfare cost of $800 million. That translates into an increase in lending of 0.02% and a cost-benefit ratio of 6.6.
- Large banks would conduct 76% of this additional lending, while community banks-which have assets below $10 billion-would lend the remaining 24%. In our baseline, that adds up to $500 million in additional lending from community banks, meaning their lending rising by 0.026%.
Even stacking every worst-case assumption, the model produces only $531 billion in additional aggregate lending, which corresponds to a 4.4% increase in bank loans as of 2025Q4. That figure requires the stablecoin market to grow to roughly six times its current size as a share of deposits, all reserves to be locked in unlendable cash rather than treasuries, and the Federal Reserve to abandon its current monetary framework. Even under those implausible conditions, community bank lending only rises by $129 billion, corresponding to an increase of 6.7%. The conditions for finding a positive welfare effect from prohibiting yield are similarly implausible. In short, a yield prohibition would do very little to protect bank lending, while forgoing the consumer benefits of competitive returns on stablecoin holdings.
