Europe may struggle to contain financial shocks tied to crypto firms and banks due to more limited crisis tools compared to the U.S. during the 2023 banking turmoil, according to UniCredit's deputy vice chair Elena Carletti. Speaking at a banking conference hosted by Madrid's IESE Business School, Carletti warned that European authorities may not be able to guarantee crypto-linked deposits in the same way U.S. regulators did after the collapses of Silicon Valley Bank and Signature Bank. The U.S. decision to protect all deposits, including funds held by stablecoin issuers, helped stabilize crypto markets during the crisis, but the same decision cannot be easily taken in Europe, Carletti stated. As reported by Reuters, the collapse of SVB rattled crypto markets as it held deposits backing some crypto firms, destabilising a major stablecoin and sparking a wave of redemptions that spilled over into the broader banking system, contributing to the failure of Signature Bank.
The comments come as the European Union's Markets in Crypto-Assets regulation (MiCA) pushes stablecoin issuers closer to traditional banks, requiring certain stablecoin reserves to be held in liquid assets such as bank deposits and government securities. This regulatory link could have become problematic during the Silicon Valley Bank collapse in March 2023, when Circle, issuer of the USDC stablecoin, revealed that $3.3 billion of its reserves were held at the bank at the time of the crisis. USDC briefly lost its dollar peg as investors rushed to redeem tokens, highlighting the vulnerability of such arrangements. Stablecoins, digital assets pegged to traditional currencies, are backed by deposits or government bonds and are a major regulatory focus because they connect crypto to mainstream finance, as noted by Reuters.
Carletti warned that Europe's deposit guarantee system, which generally protects up to €100,000 ($116,500) per depositor per bank, may not be able to absorb similar stress if large stablecoin reserve accounts come under pressure. "The coverage and protection ... was given to all deposits, including stablecoin companies, and that also allowed to maintain the stability of the stablecoin," Carletti explained, referencing the U.S. approach during the SVB crisis. "That means that we are forcing a certain alliance of stablecoin and crypto providers with the banking sector without the possibility of extending insurance in the same way, and that to me is a double form of weakness," she added. This creates what she described as a "double weakness" in the European financial system, as MiCA forces stablecoin providers to align with banks without the ability to extend insurance coverage in the same manner as U.S. regulators did during the banking crisis.
