The European Central Bank and the central banks of the 27 EU member states are pushing to amend the reserve requirements for stablecoins under the Markets in Crypto-Assets Regulation. They argue that the current rule, which requires large stablecoin issuers to hold at least 60% of their reserves in bank deposits, could increase liquidity pressure on commercial banks during periods of market volatility.
Central bank opposes 60% bank deposit requirement
This opinion comes from the European System of Central Banks' (ESCB) feedback on the MiCA consultation. Under current rules, major stablecoin issuers are required to hold at least 60% of their reserves as bank deposits.
The European Central Bank and national central banks wish to remove this requirement and instead allow issuers to allocate more to short-term, highly liquid assets. These assets should be capable of being converted to cash or settled within a short time frame to address concentrated user redemptions.
Reserve assets emphasize rapid liquidity.
The central banking system's primary concern is that during a decline in the crypto market, demand for stablecoin redemptions could surge rapidly. If issuers need to withdraw large amounts of deposits from commercial banks, the stability of bank deposits could be undermined, potentially increasing liquidity risks for lending institutions.
Therefore, central banks advocate shifting more reserves into assets that mature within five business days and are highly liquid, rather than relying excessively on commercial bank deposits. This approach enhances redemption speed and reduces direct dependence of stablecoin funds on traditional banks' liability side.
- Reserve assets emphasize shorter duration and higher liquidity.
- The focus is on improving fund availability during redemptions.
- Also reduce the pressure on the banking system.
EURC and other euro-stablecoins may be affected.
If adopted, this adjustment could directly impact euro-stablecoins already operating in compliance within the EU. The report notes that EURC, issued by Circle, already complies with MiCA requirements and is fully backed by euro-denominated assets. Circle stated that the current circulating supply of EURC is approximately €411 million.
If MiCA ultimately amends the reserve requirements, Circle and other regulated issuers may need to readjust how they configure their reserves. The article does not disclose specific implementation timelines or transition arrangements.
Law enforcement issues were also raised.
The European System of Central Banks also noted that challenges remain in the implementation of MiCA. Some crypto companies that do not comply with EU regulations can still offer services to EU users, potentially subjecting compliant stablecoin issuers to stricter constraints while offshore platforms continue to participate in the same market.