Tether CEO Paolo Ardoino has raised serious concerns about the future stability of European banks, arguing that many may collapse in the coming years due to the European Union’s new stablecoin regulations.
In a recent interview with Pascal Hügli, Ardoino stated that the EU’s regulatory framework could actually increase systemic financial risk rather than reduce it. He criticized the requirement that 60% of stablecoin reserves be held in uninsured cash deposits within European banks. In his view, this exposes stablecoin issuers to significant liquidity risk.
A Risky Reserve Requirement
Ardoino illustrated the issue using a €10 billion stablecoin market cap as an example. Under EU rules, €6 billion would need to be stored in uninsured cash deposits. Since banks operate on fractional reserves, they would typically keep only about €600 million liquid while lending out the rest.
He warned that in a scenario where 20% of users request redemptions—equal to €2 billion—the bank would be unable to meet the demand with only €600 million available. As a result, both the bank and the stablecoin issuer could face bankruptcy, not due to mismanagement by the issuer, but because of insufficient liquidity within the bank.
Exposure to Weaker Financial Institutions
Ardoino also pointed out that major European financial institutions often refuse to work with stablecoin firms. This forces issuers to rely on smaller, risk-prone banks that are more vulnerable to liquidity shocks. He argued that this setup could amplify fragility across the banking sector.
He believes the regulation is effectively using stablecoin reserves to prop up weaker banks, likening the potential consequences to the collapse of Silicon Valley Bank in 2023, which had exposed similar vulnerabilities in managing uninsured deposits.
According to Ardoino, these risks are not hypothetical. He strongly believes that unless regulatory changes are made, multiple European banks could fail in the coming years, triggered by the very rules intended to stabilize the sector.
Kosta Gushterov
Reporter at Coindoo
Kosta has been a part of the team since 2021 and has solidified his position with a thirst for knowledge, incredible dedication to his work and a “detective-like” mindset. He not only covers a wide range of trending topics, he also creates reviews, PR articles and educational content. His work has also been referenced by other news outlets.
Source: https://coindoo.com/tether-ceo-warns-eu-stablecoin-rules-could-trigger-bank-failures/