EU Stablecoin Rules Under Fire as Central Banks Seek Liquidity Thresholds

The European System of Central Banks (ESCB) is seeking changes to the EU's stablecoin reserve rules, warning that current requirements could expose banks to liquidity risks. Under the EU's Markets in Crypto-Assets (MiCA) rules, stablecoin issuers must hold at least 30% of reserves as bank deposits, rising to 60% for significant stablecoins. However, the ESCB wants these requirements removed and replaced with minimum liquidity thresholds based on how quickly reserve assets can be converted into cash.

The proposal comes after the collapse of Silicon Valley Bank in March 2023, which triggered stress for Circle's USDC after the company disclosed that $3.3 billion of its reserves were held at the bank. The ESCB pointed out that a sudden wave of redemptions could force issuers to withdraw large deposits rapidly, potentially putting pressure on banks that rely on those funds.

The ESCB has proposed requirements tied to assets maturing within one and five working days, while identifying overnight reverse repos and short-term government bonds as potential reserve instruments. This move highlights a growing regulatory focus on how stablecoins could transmit liquidity shocks between crypto markets and the banking system.