EU Stablecoin Regulators Seek Changes Amid Systemic Risk Concerns

The European Central Bank (BCE) has proposed changes to the MiCA regulation, which governs stablecoins in the EU. The BCE, along with national central banks from other EU countries, submitted a formal proposal to modify one of the key requirements for stablecoin issuers: maintaining at least 30% of their reserves in bank deposits, rising to 60% for systemically important issuers.

The motivation behind this request seems paradoxical: a rule introduced to make stablecoin reserves more secure is now described by central banks as a potential source of new systemic risk. The proposal suggests replacing the rigid deposit requirement with a liquidity-based one, where a minimum portion of reserves would be invested in liquid assets with maturities between one and five business days.

The European System of Central Banks (ESCB) cited concerns about the link between stablecoin creation and redemption, which can create a direct connection between issuers and banks holding their reserves. This could lead to shocks being transferred from stablecoins to banks, as seen in the USDC-Silicon Valley Bank crisis earlier this year.

The proposal is part of a broader effort by the EU to refine its regulations on digital assets, with the goal of making them more secure for the entire financial system. The changes could impact the development of stablecoin projects in Europe, including a consortium of nine major European banks working on a euro-denominated stablecoin under MiCA.