EU central banks, ECB oppose stablecoin bank deposit as fear mounts

The European Central Bank (ECB) and national central banks across the European Union have raised formal objections to a key regulatory requirement under the bloc's Markets in Crypto-Assets (MiCA) framework regarding stablecoin reserves.

Under current MiCA guidelines, major stablecoin issuers are required to hold at least 60% of their reserve assets as bank deposits.

which includes the ECB and the 27 national central banks of the EU—argues that this mandate poses hidden dangers.

Forcing massive sums of stablecoin reserves into commercial bank accounts exposes lenders to sudden, volatile swings in the stablecoin market.

Unlike traditional retail or corporate bank deposits, stablecoin-backed funds can be extremely fluid and prone to rapid withdrawals during market stress, creating liquidity risks for traditional banks.

Stablecoin issuers are required to hold 30% of their reserves as bank deposits - or 60% if they are major issuers.

But the central banks recommended changing MiCA rules to drop this requirement and instead specify a minimum percentage which should be held in assets that mature within one and five working days.

Instead of a mandatory 60% bank deposit rule, the central banks recommend amending MiCA to require a minimum percentage of token reserves to be held in ultra-short-term assets that mature within one to five working days.

They argue this would provide much greater liquidity and structural stability than commercial bank deposits.

"If reserves are held as bank deposits, stablecoins can alter banks' funding structures by replacing relatively stable retail deposits with deposits from stablecoin issuers, which tend to be less stable and more sensitive to market conditions," the central banks’ paper said.