UniCredit Warns Europe May Struggle With Crypto-Banking Contagion Compared to US
Europe's Response to Crypto-Banking Risks Compared to the United States
Background: The Silicon Valley Bank Crisis and Crypto Market Impact
MILAN, May 28 (Reuters) - Europe may struggle to respond to risks from links between crypto assets and banks in the way U.S. authorities contained damage during the 2023 Silicon Valley Bank (SVB) crisis, the deputy vice chair of Italian bank UniCredit said.
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. The shock spilled over into the broader banking system, contributing to the failure of Signature Bank.
UniCredit's Concerns Over European Deposit Protection
Elena Carletti's Warning
Elena Carletti, UniCredit's deputy vice chair and head of the board's risk committee, said Europe may not be able to extend the blanket protection to deposits tied to crypto firms in the event of similar turmoil.
US "Systemic Risk" Exception and Market Stabilization
U.S. authorities invoked a "systemic risk" exception that guaranteed all deposits, including those of crypto firms, helping to stabilise markets.
"The coverage and protection ... was given to all deposits, including stablecoin companies, and that also allowed to maintain the stability of the stablecoin," Carletti said at a banking conference organised by Madrid's IESE business school.
"The same decision cannot be easily taken in Europe," she said.
Stablecoins and Regulatory Challenges in Europe
Definition and Regulatory Focus
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.
EU MiCA Regulation and Its Implications
Reserve Requirements for Stablecoin Issuers
The European Union MiCA regulation on digital assets requires issuers of stablecoins, which are described as electronic money tokens (EMTs), to hold reserves as bank deposits or similar low-risk liquid assets, tying them closely to lenders.
Potential Weaknesses in the European Approach
"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," Carletti said.
(Reporting by Valentina Za; Editing by Elaine Hardcastle)
