European Central Bank President Lagarde calls for EU legislation to tighten safeguards for stablecoin multi-issuance schemes

The European Central Bank published a welcome address by President Christine Lagarde, in her capacity as Chair of the European Systemic Risk Board, arguing that financial stability policy should focus on activities and system-wide risk transmission as Europe’s financial system becomes more complex. She highlighted stablecoins as a case where familiar liquidity risks are reappearing in new forms and where EU rules can still be circumvented through cross-border issuance structures. Lagarde noted that Europe’s non-bank financial sector has expanded rapidly and is now larger in relative terms than that of the United States, at 3.8 times GDP versus 3.1 times GDP, while banks’ activities have become increasingly intertwined with non-banks and new entrants such as fintech platforms. She argued that regulators should “look through” institutional labels to the underlying financial functions and enduring risk types, and apply established tools such as capital and liquidity buffers, reliable data, and secure infrastructure within a globally anchored supervisory framework. On stablecoins, she pointed to MiCAR’s requirements for par redemption and for issuers to hold a substantial share of reserves in bank deposits, but warned that “multi-issuance schemes” involving EU and non-EU entities leave gaps because MiCAR does not extend to the non-EU issuer. She argued that, in a run, redemption demand could concentrate in the EU where redemption fees are prohibited, potentially overwhelming EU-held reserves, and called for European legislation to prevent such schemes from operating in the EU unless backed by robust equivalence regimes and safeguards for asset transfers between EU and non-EU entities.