Bank of England deputy governor points to SVB, Circle in cautious stablecoin approach

Bank of England Deputy Governor Sarah Breeden has warned that softening the UK’s proposed stablecoin rules could jeopardize financial stability, citing the collapse of Silicon Valley Bank and the brief loss of dollar parity by Circle’s USDC token as reminders of how quickly confidence can evaporate in digital finance.

Her comments come a day after the central bank released a set of long-awaited proposals for regulating systemic stablecoins, digital tokens pegged to fiat currencies and designed for use in everyday payments.

Breeden recalls 2023 stress lessons from SVB and Circle depeg

The proposal states individual holdings of stablecoins would be limited to £20,000 and require issuers to deposit 40% of the assets backing their tokens with the Bank of England, where they would earn no interest.

According to Breeden, the proposed deposit requirement was based on lessons from past stress events, such as the March 2023 collapse of Silicon Valley Bank. At the time, even the USDC stablecoin issued by Circle briefly lost its $1 peg after $3.3 billion of its reserves were trapped at the failed bank when depositors rushed to withdraw funds.

“Look at what happened with SVB, with Circle – those numbers are broadly in line with that,” she said. “That’s why we’re proposing 40% rather than a smaller number.”

Breeden is also in support of the temporary cap of £20,000 per person and £10 million for most businesses, stating that such limits would halve the stress on banks and credit creation caused by deposit outflows into stablecoins.

In a banking system like Britain’s, where around 85% of mortgages and consumer loans are funded directly through bank deposits, such a shift could constrict credit availability, she noted.

“We have a different set of risks to manage as we transition to bringing in this new form of money,” Breeden said, contrasting the UK’s bank-dependent financial structure with the non-bank finance markets in the United States, which are relatively larger and more liquid than the UK’s.

The Bank of England’s latest framework replaces a 2023 plan that would have forced stablecoin issuers to hold 100% of reserves as unremunerated deposits at the central bank, a proposal that industry participants had called unworkable.

Diverging path between the US and the UK

Breeden’s remarks highlight how differently the United Kingdom is treating stablecoins compared to the United States, where US regulators and the President Donald Trump-led administration have taken a more permissive view of stablecoins and crypto innovation. The current administration has even advanced legislation, such as the GENIUS Act to make extensive provisions for stablecoins as well as their issuers.

The Bank’s proposals cover only systemic stablecoins, those intended for use in retail and wholesale payments, leaving the Financial Conduct Authority (FCA) to supervise non-systemic tokens used primarily for crypto trading.

Breeden also stressed the importance of ensuring that consumers can identify which coins are genuinely backed by safe assets and which are not.

Without naming specific issuers, she pointed to the global dominance of dollar-based stablecoins such as Tether and Circle, making a reference to El Salvador, where Tether moved its headquarters to earlier this year.

Bank of England wants to balance stability and innovation

While industry groups continue to say that the proposed caps and liquidity rules could negatively impact the sector’s growth as other parts of the world continue to advance and adopt friendlier regulations, Breeden stated that banks and stablecoin issuers will need to adapt.

If stablecoins gain traction, she said, the bank would expect lenders to develop new wholesale funding sources to replace lost deposits.

The Bank of England has stated that it will not remove the £20,000 cap until it is satisfied that doing so poses no threat to financial stability.

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