White House Analysis Challenges Core Policy Assumptions
A recent White House economic report is making waves in policy circles, and I think it’s worth paying attention to. The Council of Economic Advisers, which directly advises the President, released an analysis last week that questions some fundamental assumptions about stablecoin regulation. They looked at proposals like the GENIUS Act and CLARITY Act, which aim to ban stablecoin yields to protect bank deposits.
The thinking behind these proposals has been that if stablecoins offer competitive returns, people might move their money out of traditional banks. That could weaken the banks’ funding base and reduce their ability to make loans. It sounds logical enough on the surface, but the White House analysis suggests the reality might be more complicated.
How Money Actually Circulates
What’s interesting is how the report breaks down where stablecoin reserves actually go. When someone converts bank deposits into stablecoins, the issuers don’t just sit on that money. They typically invest it in short-term Treasury bills and similar liquid assets. Here’s where it gets counterintuitive: that money then flows back into the banking system through dealer deposits.
The report states that most stablecoin reserves “recirculate through the banking system as ordinary deposits.” It’s not leaving the system entirely—it’s just moving around within it. The composition might shift between institutions, but the aggregate amount of deposits stays broadly stable.
Only about 12% of stablecoin reserves are held in bank deposits that could be subject to full-reserve treatment. That’s the portion that might be restricted from supporting lending if banks apply a 100% reserve requirement. The other 88%? It’s mostly in Treasury bills and similar assets that eventually find their way back to banks.
The Numbers Tell a Different Story
Perhaps the most striking finding is just how small the lending impact would be. Under baseline conditions, eliminating stablecoin yield would increase bank lending by about $2.1 billion. That sounds like a lot until you realize it represents just 0.02% of total loans.
To get lending effects in the hundreds of billions, the analysis says you’d need to assume the stablecoin share sextuples, all reserves shift into segregated deposits, and the Federal Reserve abandons its ample-reserves framework. Those are, as the report puts it, “highly unrealistic conditions.”
The report concludes that “it takes similarly implausible assumptions for the welfare effect of yield prohibition to turn positive.” That’s pretty direct language for a government document.
What This Means for Policy
This analysis matters because it comes from within the White House itself. The Council of Economic Advisers isn’t some outside think tank—it’s part of the Executive Office of the President. Their findings could influence ongoing discussions about stablecoin regulation.
There’s another layer here too. Even for the portion of funds that could re-enter the banking system, the report notes that banks might absorb some of that additional capacity into liquidity buffers rather than extending new loans. That further reduces any net lending effect.
I’m not saying this settles the debate. Policy discussions are always more nuanced than any single analysis can capture. But it does challenge some core assumptions that have been driving legislative proposals. When the economic advisors to the White House say the concerns about deposit outflows are “quantitatively small,” policymakers might want to listen.
The report doesn’t argue against regulation entirely. It just suggests that the specific concern about bank lending might be less significant than previously thought. That could open up space for different approaches to stablecoin oversight—approaches that address other risks without focusing so heavily on yield restrictions.
It’s a reminder that sometimes our intuitions about how financial systems work don’t match the actual data. Money has a way of circulating in unexpected patterns, and policies based on simple assumptions can have unintended consequences.
