- The European System of Central Banks (ESCB) proposes replacing mandatory bank-deposit thresholds for stablecoin reserves with new liquidity requirements.
- The ESCB argues that large stablecoin deposits could create liquidity risks for banks, especially during a stablecoin run.
- Proposed liquidity thresholds require significant stablecoins to hold 40% of reserves in assets maturing within one working day and 60% within five working days.
- The central banks also warned of material challenges in enforcing MiCA, as non-compliant crypto companies can still access EU customers.
- Tether CEO Paolo Ardoino had previously raised similar concerns about systemic risks from bank-deposit requirements.
The European Central Bank and EU central banks on Tuesday proposed replacing mandatory bank-deposit thresholds for stablecoin reserves with new liquidity requirements, citing liquidity risks for banks. The proposal came in the European System of Central Banks‘ response, published, to the European Commission’s review of the Markets in Crypto-Assets Regulation (MiCA).
The existing rule requires at least 30% of reserves (60% for significant stablecoins) to be held as bank deposits. The ESCB argued that this “creates a direct link between issuers and credit institutions” and could expose banks to liquidity problems if a stablecoin run forces rapid withdrawals.
Instead, the ESCB backed minimum liquidity thresholds for reserve assets maturing within one and five working days, as previously outlined by the European Banking Authority in draft rules published in 2024. Those rules would require significant stablecoins to hold 40% of reserves in assets maturing within one working day and 60% within five working days.
Tether CEO Paolo Ardoino had in 2024 warned of similar risks, illustrating that a stablecoin with €10 billion ($10.5 billion) in reserves would need €6 billion ($6.3 billion) in bank deposits. If a bank lent out 90% of those funds, only €600 million ($630 million) would remain, potentially creating a liquidity crunch during redemptions.
The ESCB also pointed to the March 2023 collapse of Silicon Valley Bank, which triggered a run on Circle‘s USDC stablecoin after $3.3 billion of its reserves were held at the failing bank. Meanwhile, the central banks warned of material enforcement challenges, noting that non-compliant crypto companies can still access EU customers.
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