Europe may be constrained in its capacity to respond to turmoil arising from connections between crypto assets and traditional banks in the same way U.S. authorities managed the fallout from the 2023 Silicon Valley Bank (SVB) failure, according to Elena Carletti, deputy vice chair of UniCredit and chair of the bank's board risk committee.
The collapse of SVB had pronounced effects on the crypto sector because the bank held deposits that supported a number of crypto firms. That loss of confidence helped destabilise a major stablecoin and triggered a wave of redemptions. The initial shock then spilled over more widely into the banking sector and was a factor in the subsequent failure of Signature Bank.
Carletti told attendees at a banking conference organised by Madrid's IESE business school that the U.S. response - invoking a 'systemic risk' exception to guarantee all deposits, including those of crypto companies - played a stabilising role. "The coverage and protection ... was given to all deposits, including stablecoin companies, and that also allowed to maintain the stability of the stablecoin," she said.
Her observation focused on a key difference between the U.S. intervention and the likely options available to European authorities. "The same decision cannot be easily taken in Europe," she said, stressing practical limits on replicating blanket deposit protections in the European context.
Stablecoins are digital assets pegged to conventional currencies and typically backed by deposits or government bonds. Because they create a channel between crypto markets and mainstream financial institutions, they are a central target for regulators concerned about contagion between the sectors.
Under the European Union's Markets in Crypto-Assets (MiCA) regulation, issuers of stablecoins classified as electronic money tokens (EMTs) must keep reserves in the form of bank deposits or comparably low-risk liquid assets. That requirement effectively links stablecoin providers closely to the banking sector, Carletti said.
"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 said.
Context and implications
Carletti's remarks underline the regulatory and systemic tensions that arise when crypto-related instruments and providers are legally and operationally anchored to banks. They highlight a structural constraint in Europe: MiCA's reserve requirements increase the exposure of banks to stablecoin issuers, while European authorities may lack the same policy levers the U.S. used in 2023 to halt depositor runs by guaranteeing all deposits via a 'systemic risk' exemption.
Observers and market participants will likely weigh these limits when assessing the resilience of Europe’s banks and the potential for crypto-related shocks to affect broader financial stability.