MiCA is a new legal regulation that aims to provide a comprehensive framework for the regulation of crypto assets in Europe. However, Ardoino highlights the possible negative effects of this regulation, especially the reserve requirements set for stablecoins, on banks.

In an interview with Forbes, Ardoino criticized MiCA’s mandate that stablecoin issuers keep 60% of their reserves as uninsured cash deposits. Although this requirement was introduced to ensure the financial stability of crypto assets, Ardoino stated that this regulation could potentially pose major risks to banks.

Ardoino gave the example of Circle’s problems with Silicon Valley Bank in 2023 and stated that a large portion of the reserves being stuck in banks could lead to serious consequences. Circle had $3 billion of its $40 billion USD Coin reserves stranded in the bank, reinforcing Ardoino’s concerns about MiCA regulations.

“I don’t want to endanger the 300 million people who hold USDT because I have to keep 60% of it as uninsured cash deposits in a bank in Europe,” Ardoino said.

Ardoino emphasized that MiCA’s high reserve requirements could increase risks rather than reduce them, contrary to the intent of the regulation. These regulations introduced by MiCA may impose significant restrictions on the trading and use of stablecoins, which may lead to undesirable effects on the financial system.

Ardoino stated that these high reserve requirements introduced by MiCA could create systemic risks for European banks. In particular, he drew attention to the liquidity pressure that large-scale withdrawals could put on banks. When a large portion of a stablecoin must be held in cash, a significant portion of that amount can be loaned by banks.

However, this leaves a very small amount on the banks’ balance sheets. If a large withdrawal demand arises, the bank may experience liquidity shortage and this may lead to bankruptcy.

Ardoino explained this situation through a scenario. For example, $6 billion of a $10 billion stablecoin must be held in cash deposits, and banks can lend 90% of that amount.

This leaves banks with only $600 million on their balance sheet. If a $2 billion withdrawal request arises, the bank would be limited to only $600 million, which could lead to bankruptcy.

“Everyone will blame stablecoins, but more importantly, it is easy to prove that such requirements from MiCA will create systemic risk for European banks,” Ardoino said. These statements indicate that MiCA regulations could have major impacts not only for crypto assets but also for the overall financial system.

It is stated that in order to better understand how the regulations brought by MiCA will affect stablecoins and the banking sector, the regulations should be examined in detail and potential risks should be analyzed.