ECB Warns Stablecoin Regulation Could Transmit Redemption Shock into Banks

The European Central Bank (ECB) is warning that the current regulation for stablecoins could lead to liquidity problems for banks if they become too large. Under the Markets in Crypto-Assets Regulation (MiCA), electronic money institutions issuing significant stablecoins must keep at least 60% of their reserve funds with banks. The ECB fears that this requirement could transmit a redemption shock into lenders, making it difficult for them to meet redemptions quickly.

The ECB prefers a system where issuers hold a minimum share of reserves in assets that mature within one to five working days. This would allow issuers to turn their reserves into cash more quickly without relying on large, immediately withdrawable bank balances.

For example, if a stablecoin issuer has €1 billion in circulation and only keeps the required 60% in bank deposits, its partner banks could lose €250 million in funding if holders redeem €250 million. The ECB estimates that a significant e-money token could theoretically meet redemptions equal to 60% of its supply by drawing down deposits before selling sovereign bonds.

The central banks have submitted their position to the European Commission's targeted review of MiCA, which remains open until September 30. The ECB cannot change MiCA through a consultation response, so the existing thresholds remain in force for now.