Tether CEO Warns of Potential Bank Failures in Europe Due to New Crypto Regulations

Tether CEO Paolo Ardoino has raised concerns about the stability of Europe’s financial system, predicting that a series of bank failures could occur in the near future. This warning comes as a result of the combination of risky lending practices and new regulations governing cryptocurrencies.

During an interview, Ardoino criticized the European Union’s regulatory framework for stablecoins, which requires companies like Tether to maintain a significant portion of their reserves—up to 60%—in uninsured bank deposits. He highlighted that this regulation could lead to a situation where a substantial amount of a stablecoin’s reserves are held in smaller banks with limited protection. For instance, if a 10 billion euros-pegged stablecoin holds 6 billion euros in such banks, the insurance coverage of 100,000 euros per depositor would be insufficient. Ardoino described this as "like spitting on a fire."

Ardoino explained that European banks, like others, operate on a fractional reserve system, allowing them to lend out 90% of their deposits. In his hypothetical scenario, this would mean 5.4 billion euros could be lent out, leaving only 600 million euros in reserves. He compared this to the collapse of Silicon Valley Bank in 2023, where a surge in redemptions exposed the mismatch between deposits and actual liquidity. Ardoino warned that a 20% redemption event could leave banks short by billions of euros, leading to potential bankruptcies.

Ardoino expressed concern that stablecoin issuers could be blamed for bank failures, even if the issuer itself is solvent. He stated that regulations aimed at helping banks in the bloc could create "huge systemic risk." Larger banks in Europe, such as UBS, are unlikely to work with stablecoin issuers, pushing them to use smaller banks and increasing the risk. Ardoino’s comments come as Tether plans to launch a U.S.-based stablecoin product and continues to invest in various projects outside the cryptocurrency ecosystem, including increasing its stake in Latin American producer Adecoagro.