The European Central Bank and EU central banks are pushing for modifications to the Markets in Crypto-Assets Regulation, proposing that stablecoin reserve requirements shift away from mandatory bank deposits toward liquidity-based standards.
In a response to the European Commission's review of MiCA published Tuesday, the European System of Central Banks called for removing existing rules that require stablecoin issuers to hold at least 30% of reserves—or 60% for significant stablecoins—as bank deposits.
Proposed Liquidity Framework
The ESCB instead endorsed minimum liquidity thresholds for reserve assets maturing within one and five working days. The central banks also identified overnight reverse repurchase agreements and short-term sovereign bonds as alternative instruments issuers could use to meet liquidity standards.
Under draft rules published by the European Banking Authority in 2024, significant stablecoins would need to hold at least 40% of reserves in assets maturing within one working day and 60% within five working days. For non-significant tokens, the thresholds are 20% and 30%, respectively.
Systemic Risk Concerns
Central banks argued that current bank-deposit requirements create direct links between stablecoin issuers and credit institutions, potentially exposing banks to liquidity crises. If a stablecoin experiences a run, rapid deposit withdrawals could strain bank liquidity, particularly when stablecoin reserves represent a significant portion of a bank's funding.
The ESCB also noted that risks can flow bidirectionally, citing the March 2023 collapse of Silicon Valley Bank, which triggered a run on Circle's USDC stablecoin after the company disclosed that $3.3 billion in reserves were held at the failed institution.
Beyond reserve requirements, EU central banks highlighted enforcement challenges with MiCA, noting that non-compliant cryptocurrency companies can still access European customers.
