EU Central Banks Suggest Liquidity Standards Over Stablecoin Reserve Rules

The European Central Bank and central banks of EU member states have proposed replacing MiCA's bank-deposit rule for stablecoin reserves with liquidity standards. They submitted their opinion to the European Commission on September 22.

Under current MiCA rules, stablecoins issued by electronic money institutions must hold at least 30% of reserves as deposits with credit institutions, rising to 60% for significant stablecoins. The ESCB recommends abolishing these reserve deposit requirements and instead setting minimum ratios of reserve assets convertible to cash within one and five business days.

The proposal aims to reduce liquidity strain during large-scale stablecoin redemptions while keeping broader MiCA obligations in place. It also frames the change as a way to prevent issuers from rapidly withdrawing bank deposits, increasing liquidity strain on banks during market stress.

The ESCB's liquidity approach applies to both significant and standard stablecoins, requiring at least 40% of reserves convertible to cash within one business day and 60% within five business days for significant stablecoins. Standard stablecoins require 20% within one business day and 30% within five business days.

The ESCB warns that large-scale stablecoin redemptions could prompt issuers to rapidly withdraw bank deposits, increasing liquidity strain on banks during market stress. They also back expanding MiCA's stablecoin remuneration ban to cover lending, borrowing, staking, and other products generating indirect returns for token holders.