tl;dr
Paolo Ardoino, CEO of Tether, warns that many European banks will fail in the coming years due to EU stablecoin regulations. He criticizes the rules requiring stablecoin issuers to keep 60% of reserves in uninsured European bank deposits, which increases systemic risk. Ardoino explains that banks le...
Paolo Ardoino, CEO of Tether, warns that new EU stablecoin regulations could escalate systemic risks by forcing issuers to hold 60% of reserves in uninsured deposits with smaller, riskier European banks. This requirement, he argues, significantly increases the chance of a banking crisis similar to the 2023 Silicon Valley Bank collapse.
Ardoino explains that banks operate on fractional reserves, lending out about 90% of deposits, which leaves insufficient liquidity to cover large stablecoin redemptions. For example, with €10 billion in stablecoins, €6 billion must be kept in uninsured deposits. If 20% of redemptions occur (€2 billion), and the bank only holds €600 million in liquid cash, both the bank and the stablecoin issuer could go bankrupt due to the shortfall.
Adding to the risk, Ardoino notes that major European banks refuse to hold stablecoins, pushing issuers toward smaller banks with higher risk profiles. He predicts that, as a result, many European banks could fail over the next few years, echoing the turmoil caused by Silicon Valley Bank’s collapse.
In essence, Ardoino criticizes the intention behind the regulations, which aim to bolster liquidity in banks, stating the opposite may happen—leading to increased systemic vulnerability and potential banking failures across Europe.