Instead of making the system safer, the European Parliament has passed a law whose implementation poses an incredibly high risk to the stability of the financial system, according to Paolo Ardoino.
For example, the rules stipulate that at least 60% of the reserves backing stablecoins must be held in EU bank accounts. However, MEPs failed to take into account that financial institutions operate under fractional reserve banking conditions. This means that only a portion of customers’ deposits are available for withdrawal at any given time, making them financially unstable in the event of a rush for cash and the closure of deposits.
Something similar already happened to the American Silicon Valley Bank in 2023, when a large bank with significant USD Coin reserves was unable to survive a panic run by clients that led to the unpegging of the USDC stablecoin.
“Silicon Valley Bank went bankrupt, we all know that, and our main competitor in the stablecoin market almost died. So I think we have a very recent example of how bad this is,” Ardoino explained.
The head of Tether noted that, among other things, cash deposits in the EU are only insured for amounts up to $100,000, which, in his opinion, is an absolutely unacceptable restriction for large issuers of stablecoins such as Tether.
The CEO of Tether Holdings said yesterday that his company intends to improve its compliance efforts with regulatory agencies and plans to hire additional staff to that end.
Source: Bits
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