White House advisers: Clarity Act allowing stablecoin yield won’t harm banks

White House economists have shrugged off concerns from bankers that allowing crypto companies to give customers yield would lead lenders to lose their deposit base.

In a Wednesday report, The Council of Economic Advisers said that if regulators were to ban stablecoin rewards, banks would only get a boost of $2.1 billion — or 0.02%.

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

Crypto executives, US banking representatives and regulators are currently hashing out the Clarity Act, a landmark crypto market structure bill, in Washington.

Banks have clashed with the crypto industry over whether stablecoins will be able to pay customers yield. US President Donald Trump has appeared to side with the crypto industry and urged regulators to get the bill over the line.

"We now know why stablecoin rewards critics wanted it suppressed," Paul Grewal, chief legal officer at Coinbase, said on X. "The most respected economists in the government found nothing that shows rewards cause deposit 'flight.' Facts are hard sometimes."

‘Small effect’ 

The Genius Act, a stablecoin bill, banned stablecoin issuers from paying customers yield on their stablecoin holdings in a bid to incentivise them.

However, the law didn’t make it clear whether or not third-party companies, like exchanges, were banned from paying interest on customers’ stablecoin holdings.

The banking lobby now seeks to plug that loophole. It argues that small banks could lose over $1.3 trillion in deposits if stablecoins continue to pay customers yield.

This is because those banking with traditional lenders would move their funds to crypto exchanges instead to get a better deal, the industry says.

But Wednesday’s report counters that argument. It says that stablecoin flows are concentrated at large institutions on both sides of the market, and that there is no significant relationship between stablecoin growth and community bank deposit changes.

“Altogether, the empirical evidence suggests that our own model overstates an already small effect of stablecoin yield on community banks,” the report adds.

Clarity Act coming soon? 

The Clarity Act aims to set in stone digital asset regulation but has been in a deadlock since January after the US’ biggest crypto exchange, Coinbase, pulled support for the bill.

Coinbase, which allows clients to earn rewards on USDC, has said that banning yield would be unfair. Banking representatives have warned they could lose their deposit base as a result as customers flock to more attractive offers from crypto exchanges.

Still, advancements are being made. Stephan Lutz, CEO of the crypto exchange BitMEX, told DL News this week that the passing of the bill was “practically inevitable” now.

And a report earlier this month also quoted senators saying that an agreement had been made over language in the bill appeasing both banking chiefs and the crypto industry.

Mathew Di Salvo is a news correspondent with DL News. Got a tip? Email at mdisalvo@dlnews.com.