The European Central Bank (ECB) alongside EU national central banks are looking to substitute mandatory bank-deposit minimums for stablecoin backing with fresh liquidity stipulations, maintaining that massive stablecoin holdings might trigger banking liquidity hazards.
The European System of Central Banks (ESCB) advocated for eliminating regulations that mandate keeping a minimum of 30% of reserves—or 60% in the case of major stablecoins—stored as commercial bank accounts. This recommendation appeared within the ESCB feedback statement, released on Tuesday, addressing the European Commission evaluation regarding the Markets in Crypto-Assets Regulation (MiCA).
Rather than enforcing current bank-deposit mandates, the ESCB supported setting baseline liquidity levels for reserve instruments expiring within one to five business days. Additionally, the institution highlighted overnight reverse repurchase agreements (repos) and short-dated government securities as viable substitutes that issuers might leverage for liquidity maintenance.
The ESCB stated that the current mandate establishes an unmediated connection between issuers and lending institutions, potentially leaving banks vulnerable to liquidity crunches if a stablecoin bank run compels an issuer to pull out reserves abruptly.
The monetary authorities referenced proposed guidelines issued by the European Banking Authority during 2024, which mandate that prominent stablecoins retain a minimum of 40% of their reserves in assets expiring in one business day and 60% expiring within five business days. Regarding smaller tokens, those requirements drop to 20% and 30% respectively.
Furthermore, the ESCB cautioned about substantial hurdles in implementing MiCA enforcement, noting that unauthorized cryptocurrency businesses continue serving European clientele in spite of the region’s authorization framework.
Related: ECB launches Pontes to settle tokenized assets without stablecoins
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