Stablecoin News: White House Study Rejects Yield Ban in GENIUS Act

The CEA report refutes such an assumption using model-based estimates, according to recent stablecoin news. It concludes that removing the stablecoin yield growth boosts bank lending by $2.1 billion, marking a 0.02% increase.

Meanwhile, the policy has a net welfare cost of approximately $800 million. These values indicate that the trade-off might not be highly biased towards the restriction.

Analysis Finds Yield Ban Would Have Minimal Effect on Bank Lending

More extreme scenarios are also examined in the analysis. The effect persists even in the face of rapid stablecoin growth and stringent reserve requirements. Total lending grew by $531 billion, or approximately 4.4%. CEAs report mentions that this outcome is conditional upon “implausible conditions,” such as major changes in monetary policy and market size.

The authors directly comment on the effectiveness of the policy. According to them, yield prohibition “would do very little to protect bank lending.” Simultaneously, it eliminates the risk of competitive returns among stablecoin users.

The report includes the flow of funds for converting deposits into stablecoins. In the first scenario, issuers use the money they receive to buy Treasury bills. These sales are re-deposited in banks, and total deposits remain relatively constant.

Rules Around Stablecoin Reserves

In a separate scenario, issuers maintain stablecoin reserves in cash at regulated institutions. These deposits may require full backing, which limits their use in lending. Such a distinction is key to understanding the policys impact, per stablecoin news updates.

Investing in Treasuries keeps money circulating in the financial system when reserves are invested. When they are kept in the form of fully reserved deposits, they are not subject to the credit cycle. The report refers to this as akin to “narrow banking,” where the money is held in a safe place, but does not contribute towards lending.

Nevertheless, the research points out that a bulk of stablecoin reserves are not in the form of idle cash. On the contrary, they are mostly invested in government securities. This will enable liquidity to be pumped back into the banking system, minimizing the impact on lending capacity.

Flaw in the Clause on Yield Prohibition

Theres another weakness in the GENIUS Act, per the report. While issuers are prohibited from paying yield, intermediaries are not restricted completely. The study states “the statutory language prohibits payments by the issuer, but does not explicitly bar intermediaries… from offering yield-like rewards.” It has facilitated platforms to offer returns via revenue-sharing deals.

Consequently, there are stablecoins that still offer yields like high-yield savings accounts. It undermines the desired impact of the policy by keeping incentives to adopt.

The results come at a time when legislators deliberated on revisions to stablecoin laws.

According to the latest stablecoin news, proposals associated with more comprehensive regulatory initiatives aim to seal such loopholes and impose yield limits on third parties. CEAs report provides an in-depth, data-driven perspective of how such an action may affect financial behavior, especially when the banking system reserves are abundant.