Stablecoin reserve deposits threaten bank resolvability
Stablecoin reserve deposits create contagion channels that threaten bank stability, the Single Resolution Board warned in its response to the European Commission. The resolution authority urged policymakers to integrate crisis management tools into the crypto framework.
The reserve deposit transmission channel
MiCA requires issuers of Asset-Referenced Tokens and Electronic Money Tokens to hold minimum reserve deposits at credit institutions.
The SRB noted that this requirement alters bank deposit bases toward volatile, confidence-sensitive wholesale funding.
Stressed redemptions at token issuers can trigger sudden deposit runs on banks, accelerating insolvency and shortening time for resolution action.
Citing the failures of Silicon Valley Bank in 2023 and FlowBank in 2024, the authority demanded explicit information-sharing mechanisms between supervisors and resolution authorities.
It also urged mandatory notifications when redemption plans are activated and clear bail-in rules under the Bank Recovery and Resolution Directive.
When liquidation is not enough
Under the current framework, crisis management for non-bank issuers relies exclusively on liquidation and par redemption.
The SRB stressed that liquidation proves insufficient if tokens attain systemic scale or embed into critical payment systems.
Multi-issuer and cross-border arrangements create further vulnerabilities, as reserve assets may reside in third countries with divergent insolvency laws.
The authority proposed establishing a dedicated resolution framework for non-bank issuers to enable business transfers and secure cross-border asset mobility during stress.
A blind spot in plain sight
The SRB pinpoints an acute blind spot in the crypto framework.
Mandating bank deposits for stablecoin reserves without resolution safeguards simply channels run risks into the banking sector.
Unless regulators establish statutory resolution powers for systemic token issuers, financial stability remains vulnerable.