ECB Seeks Liquidity Rules Instead of MiCA Stablecoin Deposit Limits

The European Central Bank (ECB) and other EU central banks are calling for changes to MiCA’s stablecoin reserve rules, arguing that mandatory bank deposits could create liquidity risks if issuers face a wave of redemption requests.

The European System of Central Banks (ESCB) proposed removing MiCA requirements that stablecoin issuers keep at least 30% of their reserves in bank deposits, with the threshold rising to 60% for significant stablecoins. The recommendation was included in the ESCB’s response to the European Commission’s review of the Markets in Crypto-Assets Regulation.

Rather than relying on fixed bank-deposit requirements, the central banks support minimum liquidity thresholds based on how quickly reserve assets can be converted into cash. The proposal would focus on assets maturing within one and five working days.

The ESCB also identified overnight reverse repurchase agreements and short-term government bonds as possible instruments for meeting the liquidity requirements.

The central banks said the current framework creates a direct connection between stablecoin issuers and commercial banks. That relationship could become a source of stress if a sudden rush of redemptions forces an issuer to withdraw large amounts of deposits at once.

The concern is similar to warnings previously made by Tether CEO Paolo Ardoino. In 2024, Ardoino argued that MiCA’s bank-deposit rules could leave both stablecoin issuers and banks exposed to liquidity pressure.

The ESCB also referred to European Banking Authority draft rules from 2024. Under those proposals, significant stablecoins would need 40% of reserves in assets maturing within one working day and 60% within five working days. For non-significant stablecoins, the figures would be 20% and 30%, respectively.

Ardoino previously illustrated the potential problem using a hypothetical stablecoin with 10 billion euros in reserves, including 6 billion euros held at banks. If a bank lent out most of those deposits, only a fraction would immediately remain available to satisfy large redemption requests.

The ESCB said the liquidity risk can also move in the opposite direction. It pointed to the March 2023 collapse of Silicon Valley Bank, which contributed to a run on Circle’s USDC after the company disclosed that $3.3 billion of its reserves were held at the failed bank.

Beyond reserve requirements, the ESCB raised concerns about MiCA enforcement, warning that crypto firms that do not comply with the rules may still be able to serve customers in the European Union.

The proposed shift would therefore place greater emphasis on the liquidity of stablecoin reserves rather than requiring issuers to maintain a fixed portion of those reserves as bank deposits.