The European Central Bank (ECB) and EU central banks want to replace mandatory threshold values for bank deposits of stablecoins with new liquidity requirements, arguing that large stablecoin deposits can create liquidity risks for banks.
The European System of Central Banks (ESCB) called for the repeal of rules under which at least 30% of reserves, or 60% for significant stablecoins, must be held in the form of bank deposits. The proposal was included in an ESCB response published on Tuesday to the European Commission’s review of the Markets in Crypto-Assets Regulation (MiCA).
Instead of the current rules on bank deposits, the ECB backed minimum liquidity thresholds for reserve assets with a maturity of one and five business days. Separately, the system pointed to next-day reverse repo trades and short-term government bonds as alternative instruments that issuers could use to ensure liquidity.
The new proposal reflects concerns previously raised by the stablecoin industry, including by Tether CEO Paolo Ardoino, who has warned since at least 2024 that MiCA requirements for bank deposits could create systemic risks for both banks and stablecoin issuers.
EU central banks are in favor of “liquidity baskets”
The ECB said the current requirement “creates a direct link between issuers and credit institutions” and could expose banks to liquidity problems if a run on a stablecoin forces the issuer to quickly withdraw deposits.
Central banks cited draft rules published by the European Banking Authority in 2024, under which significant stablecoins must hold at least 40% of reserves in assets with a maturity of within one business day and 60% within five business days. For insignificant tokens, these thresholds are 20% and 30%, respectively.
In addition to stablecoin reserves, the ECB also warned of “significant” challenges in enforcing MiCA, saying that non-compliant crypto firms may still be able to access customers in the EU.
In 2024, Tether raised similar concerns about banking risks
In an interview with Cointelegraph in October 2024, Tether CEO Ardoino illustrated the risk with a hypothetical example of a stablecoin holding €10 billion in reserves, of which €6 billion would have to be kept in bank deposits.
If the bank lent 90% of those funds, only €600 million would remain at its disposal, Ardoino said. In his view, this could potentially create a liquidity shortfall if the issuer suddenly needed billions to meet redemptions.
Almost two years later, the ECB indicates a similar risk: a run on a stablecoin could force the issuer to quickly withdraw deposits and create liquidity problems for the bank, especially if the stablecoin’s reserves make up a significant share of its funding.
On Tuesday, central banks said risks could also spread in the opposite direction, citing the collapse of Silicon Valley Bank in March 2023, which sparked a run on Circle’s USDC stablecoin after Circle disclosed that $3.3 billion of its reserves were held at that bank.
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