The European Central Bank (ECB), together with the central banks of the European Union's 27 member states, has called for abolishing a rule that requires stablecoin issuers to hold a minimum share of their reserve assets as bank deposits. The institutions argue that the current framework could transmit instability from crypto markets into the traditional banking system.

In a joint response to a public consultation on the Markets in Crypto-Assets (MiCA) regulation, the European System of Central Banks (ESCB) warned that the existing requirement — under which stablecoin issuers must keep 30% of their reserves in bank deposits, rising to 60% for major issuers — exposes lenders to the risk of sudden, large-scale withdrawals.

According to the central banks, deposits from stablecoin issuers tend to be less stable than ordinary retail deposits and are more sensitive to shifts in market conditions. A run on a large stablecoin could therefore force issuers to withdraw these funds rapidly, destabilizing the funding structures of the banks holding them. The dispute matters beyond its technical details: reserve rules determine how much deposit funding stablecoin issuers park with banks, making them a direct link between the crypto sector and EU lenders.

As an alternative, the ECB proposed that MiCA specify a minimum percentage of reserve assets to be held in highly liquid instruments maturing within one to five business days. Such assets, it argued, would give issuers the flexibility to meet redemption demands without creating concentrated deposit risks for the banking sector.

The concerns echo long-standing warnings from regulators and financial stability bodies that stablecoins — crypto tokens typically pegged to the US dollar or another currency — could serve as a channel through which turmoil in digital asset markets spills over into the wider financial system. That debate has taken on added weight as stablecoins have moved beyond trading into broader use in payments and settlement, drawing increased scrutiny from financial authorities.

Multi-Issuance Models and Enforcement Gaps Under Scrutiny

Beyond the reserve composition debate, the central banks reinforced the position of the European Systemic Risk Board that multi-issuance stablecoin models pose financial stability risks and are not permitted under current rules. In such arrangements, global stablecoin firms treat tokens issued within the EU as interchangeable with those issued elsewhere, potentially allowing regulatory arbitrage.

Should multi-issuance ever be permitted in the future, the ESCB argued, MiCA would need a comprehensive framework of safeguards, including an assessment of whether stablecoin regimes in other jurisdictions can be considered equivalent.
The comments come amid a shifting global regulatory landscape. The United States signed a law last year establishing a regulatory regime for stablecoins, but broader American crypto legislation has stalled after the Senate failed to advance the Clarity Act. Within the EU, crypto companies faced a June deadline to obtain an MiCA license or wind down their operations in the bloc. Attention now turns to whether EU policymakers fold the ESCB's feedback into adjustments to MiCA, and whether momentum for broader crypto legislation revives in Washington.

The central banks also cautioned that European regulators face material challenges in enforcing the new framework, noting that non-compliant crypto firms continue to reach EU customers. The situation raises significant investor protection concerns and underscores the gap between rulemaking on paper and implementation in practice. How EU authorities act on the reserve composition proposal — and on enforcement — will shape how the framework performs in practice.

Source: Metaverse Post