ECB Seeks Ban on Stablecoin Yields and Scraps Deposit Requirements

The European Central Bank (ECB) and national central banks of all 27 EU member states have called on Brussels to ban stablecoin holders from earning returns, arguing that payment tokens should not function like interest-bearing bank deposits.

In a submission to the European Commission's review of the Markets in Crypto-Assets Regulation (MiCA), the ECB and other national central banks said they want to scrap MiCA's fixed bank-deposit reserve requirements, which they now view as a threat to lenders. The current rules require issuers regulated as electronic money institutions to hold at least 30% of reserves as deposits with credit institutions, rising to 60% for tokens designated as 'significant.'

The ECB and other central banks argue that the deposit thresholds are unrealistic, as banks assume they could lose 100% of deposits from electronic money institutions compared to about 5% of a typical retail deposit. During a crypto sell-off, redemptions would likely hit multiple banks simultaneously because stablecoin holders would be responding to the same market event.

The ECB estimates that a significant e-money token could fund redemptions equal to 60% of its supply through withdrawals from bank deposits alone before needing to sell any government debt. The central banks propose liquidity-based requirements tied to how quickly reserve assets can be converted into cash, with issuers needing to hold a minimum share of reserves in assets maturing within one to five working days.

The response also calls for 'appropriate regulatory safeguards' against the growing use of non-euro stablecoins issued outside the EU, warning they pose risks to financial stability and the transmission of monetary policy. The central banks say it would be useful if authorities could impose a prohibition on issuing new tokens, as well as an obligation to redeem existing tokens, on issuers judged to pose a threat.