European central banks have recommended removing a European Union requirement that stablecoin issuers hold part of their reserves in commercial-bank deposits, bringing the bloc’s approach closer to the United Kingdom’s proposed framework.
EU rules under the Markets in Crypto-Assets regulation (MiCA) currently require stablecoins issued by electronic-money institutions to keep at least 30% of their reserves in commercial-bank deposits. The minimum rises to 60% for significant tokens.
Reuters reported on 22 September that the European System of Central Banks – made up of the European Central Bank and EU national central banks – wants that compulsory allocation replaced with minimum reserve levels in assets maturing within one and five working days.
The proposal would alter where issuers hold money intended to meet redemptions, although MiCA’s existing requirements remain in force unless EU lawmakers amend them.
The recommendation came on the same day as the Bank of England’s consultation deadline for its draft systemic stablecoin Code of Practice. The Bank’s June policy excluded commercial-bank deposits from the backing of systemic sterling stablecoins because of financial, operational and contagion risks.
The Bank of England plans to finalise the code by the end of 2026. The two regimes apply to different issuers and are at different stages, but both reflect concern that placing stablecoin reserves with commercial banks can link stress in the banking system to the ability of token holders to recover their money.
Why bank deposits create a two-way risk
Under MiCA’s deposit rules, commercial banks become part of the process for meeting stablecoin redemptions. Money backing a token is also funding for the bank holding the deposit, meaning the coin’s ability to repay holders depends partly on the bank’s ability to return the funds.
The risk can move in either direction. In a June speech, the ECB said a bank failure could undermine confidence in the quality and availability of stablecoin reserves. USDC’s loss of its peg in March 2023, when some of its backing was held at the failing Silicon Valley Bank, demonstrated that exposure.
A wave of redemptions could also put pressure on banks. If holders rush to withdraw their money, an issuer may need to remove large deposits from its banks to repay them. A reserve designed to protect token holders can therefore become funding that a bank loses suddenly, at a time when confidence is already weakening.
The European proposal would focus on short-maturity assets rather than requiring a fixed share of commercial-bank deposits. That differs from the United Kingdom’s outright exclusion of commercial-bank backing.
Under the Bank of England’s steady-state policy, issuers can hold up to 70% of reserves in short-term UK government debt with no more than six months to maturity. The remaining 30% must be held in non-interest-bearing central-bank deposits. Eligible issuers classified as systemic at launch can initially hold up to 95% in government debt while they scale.
The UK framework also includes financial risk reserves and a planned central-bank liquidity backstop. These measures are intended to help create redemption cash during periods of stress, when securities may need to be sold or financed quickly.
Central-bank deposits provide a separate source of cash in Britain. Their value is highlighted by an ECB analysis suggesting that significant stablecoins issued by electronic-money institutions could meet redemptions equal to 60% of supply by drawing down deposits without immediately selling sovereign bonds.
For EU issuers, changing the current deposit floors would require legislative amendments through the EU lawmaking process. Until then, the existing MiCA requirements remain the operating constraint.
