European central banks want to remove stablecoin deposit safeguard

The European System of Central Banks recommended replacing MiCA's compulsory bank-deposit share for stablecoin reserves. The system includes the European Central Bank and EU national central banks. The proposed replacement would use minimum reserve percentages in assets maturing within one and five working days. EU rules currently require stablecoins issued by electronic-money institutions to hold at least 30% of their reserves in commercial-bank deposits. The requirement rises to 60% for significant tokens. MiCA's existing requirements remain in force until EU legislation changes. The proposal would change where issuers keep redemption money. The European Commission's legislative process must amend MiCA's statutory floors. Britain excludes commercial-bank deposits from the backing of systemic sterling stablecoins. The Bank of England's June policy allows up to 70% in short-term UK government debt with no more than six months remaining to maturity. The policy requires 30% in non-interest-bearing central-bank deposits. Eligible systemic issuers can initially hold up to 95% in government debt as they scale. The Bank of England intends to finalize its Code of Practice by the end of 2026. The UK regime primarily covers sterling stablecoins widely used in payments. The Bank of England and the Financial Conduct Authority jointly regulate those stablecoins after Treasury recognition. Commercial-bank deposits can expose stablecoins to bank stress. Bank failure can damage confidence in the quality and availability of stablecoin reserves. USDC lost its peg in March 2023 after some backing sat at failing Silicon Valley Bank. Large redemptions can also cause issuers to withdraw deposits from banks. That withdrawal can remove bank funding during a period of weakening confidence. An ECB analysis says significant stablecoins issued by electronic-money institutions could meet redemptions equal to 60% of supply by drawing down deposits without immediately selling sovereign bonds. Securities can fluctuate in value or become difficult to sell under stress. Britain's policy includes financial risk reserves and a planned central-bank liquidity backstop.