Europe’s central banks say stablecoin deposit regulations could mean less stability for lenders.
The European System of Central Banks (ESCB) published a paper Tuesday (Sept. 22) in response to Europe’s Markets in Crypto-Assets (MiCA) regulation, which requires stablecoin issuers to hold 30% of their reserves as bank deposits, or 60% for major issuers.
The ESCB — composed of the European Central Bank and the central banks of 27 countries — argues that these requirements could leave banks exposed to a run on stablecoins. Instead of the 30%-60% rule, the report recommends MiCA require “a minimum percentage which should be held in assets that mature inside of one to five working days.
“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 paper said.
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“Overall, the introduction of stablecoin issuers may result in a less stable funding structure for banks and, depending on the composition of reserve assets, a smaller aggregate deposit base, with implications for banks’ capacity to supply credit to the economy.”
The paper also argues that regulators in Europe are facing “material challenges” in enforcing cryptocurrency regulations, as non-compliant crypto companies continue to have access to EU customers, which “raises concerns over investor protection, market integrity and the credibility of the regulatory framework.”
In other digital asset regulation news, PYMNTS wrote last week about the failure of the Clarity Act — which would have established a regulatory regime for crypto in the U.S. — to move forward in the Senate.
The demise of that bill, the report said, essentially makes stablecoins “the presumptive standalone regulated U.S. digital asset,” and adds more significance to a series of recent developments in the crypto world.
These range from the U.S. Securities and Exchange Commission’s (SEC) experiments with tokenized securities to Mastercard’s work to create new stablecoin capabilities and Circle’s introduction of blockchain infrastructure for machines.
“Each market remains early, and none guarantees that stablecoins become the dominant settlement technology,” the report said.
“But the direction of travel is charting an inverse of crypto’s original proposition, where blockchain could create a financial system outside traditional finance. Instead, stablecoins are succeeding through the opposite strategy: embedding themselves inside it.”
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