Elena Carletti, who chairs the risk committee on UniCredit Bank’s board of directors, stated that a possible financial shock associated with crypto companies in Europe may be more difficult to manage compared to the tools used in the 2023 banking crisis in the USA. Carletti stated that regulators in Europe cannot easily implement a step similar to the full deposit protection implemented in the United States after the collapse of Silicon Valley Bank (SVB) and Signature Bank.
Measures taken during the crisis in the USA
Following the collapse of SVB and Signature Bank in March 2023, US authorities guaranteed all deposits, including not only regular depositors but also balances held by stablecoins. This measure was especially critical for crypto firms with large assets, such as stablecoin issuers. It was revealed that approximately $3.3 billion in reserves of the USDC stablecoin issued by Circle were kept in SVB; Due to the impact of the crisis, USDC lost its one-to-one fixed value with the US dollar for a short time.
Europe’s limited warranty system
The Markets in Crypto-Assets (MiCA) regulation introduced by the European Union requires that a significant portion of the reserves of stablecoin issuers be kept in liquid assets such as bank deposits or government bonds. This condition brings the crypto market and the banking sector even closer together. However, Carletti emphasized that the EU’s deposit guarantee system, in principle, provides protection of a maximum of 100 thousand euros per bank per person, and that it is not possible for stablecoin reserves to be protected by such a system in a comprehensive crisis.
Thanks to the steps taken in the USA, great stability has been achieved in the crypto markets; However, it does not seem possible to provide a guarantee of the same scope in Europe, which could lead to a double vulnerability.
Mini dictionary: MiCA (Markets in Crypto-Assets) is a comprehensive legal framework prepared by the European Union and aims to regulate the crypto market. It aims at reserve management of stablecoin issuers and investor protection.
The new balance between banks and crypto companies
While crypto companies’ ties to the banking system are strengthening day by day, the fact that large amounts of stablecoin reserves are protected by only limited insurance coverage raises concerns in terms of systemic risk. Carletti stated that this structure ties stablecoin and crypto companies more to the banking sector, but depositors may not be fully protected in major crises.
| Country/Region | Deposit Assurance | Scope of Stablecoin Reserves |
|---|---|---|
| USA | Unlimited (all balances in crisis) | Included in SVB and Signature samples |
| EU | 100,000 euros per bank per person | Subject to classic deposit insurance with MiCA, no additional assurance |
Vulnerability and possible risks in the system
Carletti emphasized that securing stablecoin reserves only with a limited government guarantee creates a simultaneous vulnerability for both the traditional financial system and the crypto market. While the banking-crypto bond is increasing in the EU, it is thought that not all funds can be protected in the event of a serious market shock, as in the USA. Therefore, regulators in Europe will need to produce new measures according to developing market dynamics.
