[Updated 15:33 UTC, Sept. 22 with comment from Tether CEO Paulo Ardoino in final paragraph.]
The European Central Bank (ECB) and EU central banks want to replace mandatory bank-deposit thresholds for stablecoin reserves with new liquidity requirements, arguing that large stablecoin deposits could create liquidity risks for banks.
The European System of Central Banks (ESCB) called for removing rules requiring at least 30% of reserves, or 60% for significant stablecoins, to be held as bank deposits. The proposal came in the ESCB’s response, published Tuesday, to the European Commission’s review of the Markets in Crypto-Assets Regulation (MiCA).
Instead of the existing bank-deposit rules, the ESCB backed minimum liquidity thresholds for reserve assets maturing within one and five working days. It separately pointed to overnight reverse repurchase agreements (repos) and short-term sovereign bonds as alternative instruments issuers could use to achieve liquidity.
The new proposal echoes concerns previously raised by the stablecoin industry, including Tether CEO Paolo Ardoino, who has warned since at least 2024 that MiCA’s bank-deposit requirements could create systemic risks for both banks and stablecoin issuers.
EU central banks favor liquidity buckets
The ESCB said the existing requirement “creates a direct link between issuers and credit institutions” and could expose banks to liquidity problems if a stablecoin run forces an issuer to rapidly withdraw deposits.
The central banks cited draft rules published by the European Banking Authority in 2024, requiring significant stablecoins to hold at least 40% of reserves in assets maturing within one working day and 60% within five working days. For non-significant tokens, the thresholds are 20% and 30%, respectively.
Beyond stablecoin reserves, the ESCB also warned of “material challenges” in enforcing MiCA, saying non-compliant crypto companies can still access EU customers.
Tether raised similar bank-risk concerns in 2024
In an October 2024 Cointelegraph interview, Tether CEO Ardoino illustrated the risk with a hypothetical stablecoin holding 10 billion euros in reserves, 6 billion euros of which would have to be kept in bank deposits.
If a bank lent out 90% of those funds, he said, only 600 million euros would remain available, potentially creating a liquidity crunch if the issuer suddenly needed billions to meet redemptions, Ardoino said.
Related: ECB launches Pontes to settle tokenized assets without stablecoins
Flash forward almost two years and the ESCB now points to a similar risk, saying a stablecoin run could force an issuer to rapidly withdraw deposits and create liquidity problems for a bank, particularly if stablecoin reserves account for a significant share of its funding.
The central banks on Tuesday said risks can also flow in the opposite direction, citing the March 2023 collapse of Silicon Valley Bank, which triggered a run on Circle’s USDC stablecoin after Circle disclosed that $3.3 billion of its reserves were held at the bank.
Following the ECB announcement, Tether’s Ardoino weighed in on X, posting: “Europe’s central banks want Brussels to delete a MiCA rule on stablecoin reserves. It forces large issuers to keep 60% of that money in commercial banks. Tether refused an EU license over the same clause.”
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