A report from White House economists on Wednesday stated that prohibiting cryptocurrency companies from offering yields on stablecoins to customers would not have a substantial impact on community banks. This conclusion marks a recent development in the intense conflict between the two major industries, which had previously caused a legislative stalemate in Congress. According to the report by the Council of Economic Advisers (CEA), banning such rewards would only marginally increase traditional lending—by approximately 0.02%, or $2.1 billion—with the majority of this growth going to large banks rather than community lenders. The report noted, "The conditions for seeking positive social welfare effects by prohibiting yields are entirely unrealistic. In short, a yield ban does little to protect bank lending but deprives consumers of the benefit of competitive returns on their stablecoin holdings." This report contradicts findings from the Independent Community Bankers of America, which had argued that small banks could risk losing $1.3 trillion in deposits and $850 billion in loans if legislation explicitly permitting specific interest payments on stablecoins—which often offer higher returns—were passed. The CEA is intended to provide objective advice on domestic and international economic policy issues. However, the council operates within the Executive Office of the President, and President Trump has been a supporter of the cryptocurrency industry, actively pushing Congress to advance stablecoin legislation. Stablecoins are designed to maintain a constant price, typically pegged to the U.S. dollar. In July of last year, Trump signed a landmark regulatory framework for stablecoin issuers, prohibiting them from offering any form of interest or yield. Nevertheless, the law does not ban distribution partners from providing rewards linked to stablecoin balances. For example, Coinbase offers a 3.5% return to some customers holding USDC balances, a stablecoin issued by Circle Internet Corp. The proposed legislation, known as the Clarity Act, could address this perceived gap—either by prohibiting third parties from offering rewards or by establishing their legality. However, due to significant conflicts between the crypto industry and banking leaders, the bill has been delayed for months, prompting a series of White House-led negotiations aimed at reaching an agreement.
Comments