Stablecoin Yield: Money In, Lending Out

The first-ever Open Banker Salon (June 5, 2026, register here today!) features a certain-to-be electric debate on the GENIUS Act, starring Dan Gorfine, Dan Awrey, Tom Brown, and Dr. Andrew Nigrinis. To whet your appetite, this week we are running two pieces on stablecoins by Salon participants. We founded Open Banker to elevate financial policy debates, but that doesn't mean we aren't above a genteel bout of fisticuffs from time to time. See you there!

Dr. Andrew Rodrigo Nigrinis is a Stanford-trained economist specializing in consumer finance, antitrust, and regulatory policy, who was the first Enforcement Economist at the Consumer Financial Protection Bureau. He is now in private practice, where he provides expert economic analysis for litigation and public policy matters at Legal Economics LLC with a focus on credit markets, medical debt, and the intersection of financial regulation and competition.

Washington’s stablecoin debate took a new turn in April when the White House Council of Economic Advisers (CEA) issued a report concluding that prohibiting stablecoins from paying yield would have little impact on bank lending. Designed to reassure policymakers, it unfortunately understates the impact in several ways. 

My October 2025 paper found that stablecoin-driven deposit losses could lead to a $1.5 trillion reduction in lending, with community banks hit hardest. The CEA Report doesn’t dispute the mechanism discussed in my paper — so I’ll take it as granted that this mechanism is accurate. What it does do is rely on many favorable assumptions to tamp down the impact of that mechanism: market scale, reserve recycling, differences between large and small banks, and monetary regimes. Once these assumptions are made more neutral — to be direct, once they reflect a realistic understanding of the market — the model still produces material reductions in bank lending.  

The CEA Report is a Frozen Snapshot, Not a Forecast. Let it Go

The primary problem with the CEA Report is that it looks at a moment in time of a nascent stablecoin market and then assumes that things hold that way forever. The GENIUS and CLARITY legislation, however, are designed to grow the stablecoin market for mainstream adoption. For instance, the CEA Report’s baseline limits its analysis to today’s (really yesterday’s) stablecoin market size: roughly $300 billion, or about 1.7% of total deposits. It then “stress tests” the model by increasing the stablecoin share to 10% of deposits — roughly $1.7-$1.8 trillion. But even that stress scenario, a scale the CEA treats as implausibly high, falls well short of most forward-looking projections. The Treasury Secretary himself has cited reports that the stablecoin market could grow to $3.7 trillion, 21% of deposits! The CEA Report “stress tested” is significantly below this forecast.   

Community Banks and Large Banks Are Not the Same

The scale problem is being compounded by a fundamental misconception about the business of banking: the CEA Report effectively treats community banks and large banks as interchangeable. That assumption is a significant over-simplification. Ample research demonstrates that small and large banks draw from different depositor bases, hold different asset portfolios, and use their funding through entirely different intermediation structures. Community banks hold a proportionally larger share of real estate, commercial, and agricultural loans. Large banks hold more wholesale and trading assets. A model that treats them as one undifferentiated sector does not accurately capture the policy question.

The key issue is that as stablecoins scale, deposit flows may shift disproportionately out of small banks. Reserve recycling does not protect community banks if broader adoption draws funds away from smaller banks while recycling associated balances through large custodial institutions. The mechanism instead diminishes community banks of their stickiest and cheapest funding… deposits.  

Money Staying "In the System" Is Not the Same as Money Supporting Lending

The CEA Report essentially argues that policymakers should take comfort in the fact that money remains in the banking system after stablecoins are issued. But the CEA Report doesn’t look closely enough at whether the money returns in a form that still supports ordinary credit intermediation. Again, ample research demonstrates that stablecoin-related deposits are not a like-for-like substitute for retail core deposits. They are more concentrated, more volatile, and treated differently under prudential rules — and therefore much less likely to be used to support lending. 

Quite plainly: a dollar that comes into a retail bank as a deposit is very different than a dollar that comes to a bank as converted to a wholesale stablecoin-related balance — and each faces very different runoff risk.  

The CEA’s Report’s Assumes the Most Favorable Monetary Regime Baseline

Finally, the CEA’s Report’s anodyne results depend on monetary policy conditions that are most favorable to minimizing the impact on lending, and on those conditions holding indefinitely. 

By anchoring its analysis in an ample-reserves environment, the CEA Report assumes the banking system can absorb deposit reallocation without material credit contraction. These assumptions do not provide a neutral backdrop and meaningfully distort the outcome. 

The problem is that the Federal Reserve’s current monetary policy approach will not last forever. Federal Reserve research demonstrates that substitution between deposits and cash-like outside assets (like money market funds) is materially stronger when reserves are tight. 

The report’s own stress test table confirms that, relative to a yield-bearing baseline, prohibiting yield raises lending by $2.1 billion under ample reserves but by $531 billion when the ample-reserves assumption is relaxed or removed and reserves are scarce. That is not a minor sensitivity — it is more than a 250-fold increase in the estimated lending effect. 

The Real Cost Falls on Communities, Not Balance Sheets

The CEA Report’s headline conclusion that stablecoin yield prohibition has only modest effects on lending does not hold under more neutral assumptions and more realistic baseline scenarios. It requires a set of assumptions that are collectively favorable in every dimension: a nascent adoption of stablecoins, one-for-one reserve recycling, large and community banks operating the same, and a permanently ample-reserves monetary policy at the Federal Reserve. Relax any one of those assumptions toward more realistic expectations, and the impact of stablecoins on lending grows. 

Treasury demand for stablecoins may be a worthwhile goal, but it will come at a cost. The policy question is whether a material decline in lending to farms and small businesses is an appropriate price to pay. 

The opinions shared in this article are the author’s own and do not reflect the views of any organization they are affiliated with.

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OPEN BANKER SALON - JUNE 5, 2026

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