White House economists have allayed concerns that stablecoin rewards could pose a risk to bank deposits, providing a major boost for the CLARITY Act. The study by these economists also found that banning stablecoin rewards will do little to aid bank lending, indicating that the stablecoin yield provision will do little or no harm to the banking industry.
CLARITY Act Gets Boost Following White House Study
A White House study by the Council of Economic Advisers noted that its model shows concerns that stablecoin rewards pose a risk to bank deposits are “quantitatively small.” They noted that the yield prohibition in the GENIUS ACT and the proposed reinforcement in the CLARITY Act may have motivated the concern that competitive stablecoin returns will draw deposits out of the banking system.
However, their research has shown that this is unlikely to happen. The banking industry has, for some time now, clashed with the crypto industry over the stablecoin yield provision in the crypto bill, arguing that customer rewards will spark a deposit flight.
This clash has been the major obstacle to the CLARITY Act’s progress, with the Senate Banking Committee having to keep the bill’s markup on hold in hopes of a settlement between both sides. As CoinGape reported, banking and crypto leaders are optimistic that they could soon reach a deal over the latest stablecoin yield text.
This report is likely to play a pivotal role in both sides reaching a deal. These White House economists had further explained why the concerns are quantitatively small, noting that stablecoin reserves recirculate through the banking system as ordinary deposits and that only the 12% held in bank accounts is truly locked out of the credit multiplier.
Banning Stablecoin Yield Will Do Little To Boost Bank Lending
The White House study also found that including a ban on stablecoin rewards in the CLARITY Act would do little to boost bank lending. At baseline calibration, eliminating stablecoin yield increases bank lending by $2.1 billion, which represents a net increase of 0.02% of total loans,” the study noted.
The economists further remarked that producing lending effects in the hundreds of billions requires simultaneously assuming that the stablecoin share sextuples, that all reserves shift into segregated deposits, and that the Fed abandons its ample-reserves framework. “It takes similarly implausible assumptions for the welfare effect of yield prohibition to turn positive,” they added.
It is worth noting that under the GENIUS Act framework, stablecoin issuers cannot pay yields on balances. However, the focus of the stablecoin yield provision in the CLARITY Act is on whether third-party crypto firms, such as Coinbase, can distribute stablecoin rewards to their customers.
A previous text had banned paying rewards on stablecoin balances and limited them to activity-based rewards. However, the Senate Banking Committee has yet to release the latest stablecoin yield text, creating uncertainty about what exactly the provision now entails.
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