Stablecoins Could Pay Interest

Banks are already facing the prospect of competing for deposits with issuers of stablecoins. A new report suggests that allowing stablecoins to offer yield may not have an impact on banking lending. Stablecoin issuers offering yield on funds held as stablecoins could fundamentally reshape the United States financial system.

On April 8, 2026, the White House Council of Economic Advisers (CEA) released a report analyzing the potential impact on bank lending that would result from stablecoin issuers being permitted to offer yield on stablecoin holdings. The report concludes that:

“In short, a yield prohibition would do very little to protect bank lending, while forgoing the consumer benefits of competitive returns on stablecoin holdings.”

(April 8, 2026, White House CEA Report). This conclusion comes as Congress considers the CLARITY Act, which would close a loophole left by the GENIUS Act’s prohibition on stablecoin issuers offering yield.

As background, the GENIUS Act of 2025 established a regulatory framework for stablecoin issuance. The Act maintained a key distinction between stablecoin issuers and the banking industry: unlike banks, stablecoin issuers could not offer yield on funds held in stablecoins.

The stablecoin industry, however, quickly found a workaround. While issuers themselves could not offer yield, their affiliates could offer essentially the same result through reward programs.

This loophole threatens to drain liquidity from traditional banks as customers shift funds to stablecoins. As liquidity leaves the banking system, lending capacity could diminish.

The CLARITY Act would prohibit stablecoin issuers from offering this disguised yield. The legislation has passed the House of Representatives and is currently being considered by the Senate.

The White House report, however, undermines a core argument for the yield prohibition by concluding that permitting yield would not significantly impact bank lending. Central to this conclusion is the CEA’s assumption that:

“Most stablecoin reserves recirculate through the banking system as ordinary deposits: only the 12% held in bank accounts is truly locked out of the credit multiplier (if banks apply a 100% reserve requirement), and even that fraction is further attenuated by prudential reserve requirements and voluntary bank liquidity buffers.”

(April 8, 2026, White House CEA Report) (emphasis added). In other words, the CEA concludes that voluntary bank liquidity buffers will absorb potential losses from deposits shifting to stablecoins.

The American Bankers Association (ABA) takes issue with the CEA report’s conclusions. In its own analysis, the ABA notes that the stablecoin market remains relatively immature. As it grows, stablecoins will capture an increasing share of deposits, significantly impacting bank lending. The ABA highlights its prediction for Iowa banks: a $4.4 billion to $8.7 billion reduction in lending.

The ABA also notes that the CEA report fails to address the consequences when banks—particularly community banks—lose liquidity and must replace it. Replacement funding may come from higher-cost deposits or wholesale funding sources, which can negatively impact bank earnings and, ultimately, bank capital.

The CLARITY Act will remain the subject of intense lobbying by both banks and the stablecoin industry. Iowa banks should continue to monitor these developments as the financial services landscape in the United States continues to evolve.