In a recent interview on the Less Noise More Signal podcast, Paolo Ardoino, the CEO of Tether, raised significant concerns regarding the stability of Europe’s financial system. He warned that the continent may be on the brink of a wave of bank failures, driven largely by risky lending practices in conjunction with new regulatory frameworks for cryptocurrency.
Ardoino criticized the European Union’s approach to regulating stablecoins, which forces companies such as Tether to hold a substantial portion of their reserves—up to 60%—in uninsured bank deposits. This scenario poses a risk where a company could maintain 6 billion euros of a 10 billion euro-pegged stablecoin in small banks with limited protection, as highlighted by Ardoino. He starkly pointed out, “The bank insurance in Europe is only 100,000 euros. If you have 1 billion euros, that’s like spitting on a fire.”
Additionally, Ardoino explained that European banks, like their global counterparts, operate under a fractional reserve banking system, allowing them to lend out a significant portion of deposits. In the previously mentioned scenario, for instance, with 6 billion euros in deposits, banks could potentially lend out 5.4 billion euros. This level of risk is reminiscent of the circumstances leading to the collapse of Silicon Valley Bank in 2023, when a sudden wave of redemptions laid bare the discrepancy between deposit levels and actual liquidity.
Ardoino expressed concern that a similar predicament could unfold in Europe, estimating that even a 20% redemption event could leave banks grappling with massive shortfalls. He stated, “As a stablecoin issuer, you go bankrupt—not because of your own mismanagement, but due to the failure of the bank. If that happens, the government will likely respond with a narrative dismissing stablecoins as dangerous.”
Despite intentions to support banks and enhance liquidity within the bloc, Ardoino contends that European regulations inadvertently create substantial systemic risks. The reluctance of major banks, such as UBS, to engage with stablecoins pushes issuers to rely on smaller banks—heightening the potential for instability.
As Tether gears up to unveil a new U.S.-based stablecoin product, the company’s ongoing investments, including a recent acquisition of a stake in the Latin American agricultural producer Adecoagro, further emphasize the evolving landscape within which stablecoins operate. However, as Ardoino’s warnings suggest, the intertwined fates of stablecoin issuers and banking institutions could spell trouble for Europe’s financial future.
