ECB warns stablecoins risk stripping European banks of deposits
The European Central Bank is accelerating its digital euro project to prevent stablecoins from draining the retail deposits that commercial banks need to fund lending.
European Central Bank board member Piero Cipollone warned on Friday that the proliferation of stablecoins could strip commercial banks of their retail deposits, a threat the institution plans to counter with a state-backed digital euro.
European lenders are already ceding ground in payments. Two-thirds of card transactions in the euro area are processed through non-European schemes, and 13 of 21 eurozone nations lack a domestic card network. The shift toward mobile payments has further eroded bank revenues by forcing lenders to pay higher fees than traditional debit cards while losing access to valuable transaction data.
“Even traditional debit card payments are becoming less popular. In fact, mobile payments are on the rise and they already exceed one in ten point-of-sale transactions in Ireland, the Netherlands and Finland,” Cipollone told a banking conference in Rome. “When their customers use mobile payments, banks typically pay higher fees than those associated with debit cards and often do not receive any information about the payment, so they lose both fees and data. If the use of stablecoins increases in the future, banks will also lose retail deposits.”
The loss of deposits poses a deeper structural risk than forfeiting fee income. Deposits act as the raw material for bank lending, and a migration to dollar-denominated stablecoins—which total roughly $300 billion globally—would directly constrain credit availability. For smaller lenders, such as Italian cooperative banks where half the branches serve towns of under 10,000 people, losing local payment data and deposits threatens the viability of community lending.
To shield commercial banks, the ECB is advancing a digital euro designed to be distributed through existing lenders rather than displacing them. Under the current framework, banks would continue to hold customer accounts, earn interchange fees, and retain transaction data. The central bank has selected 36 providers, including Deutsche Bank, UniCredit, and Revolut, for a 12-month pilot scheduled to begin in the second half of 2027.
Policymakers are aware that a government-backed digital currency could itself trigger deposit flight. To mitigate this, the digital euro will carry no interest and will be subject to holding limits, removing the incentive for consumers to move large sums out of commercial accounts. The ECB’s internal financial stability analysis concluded these design choices pose no material risk to bank liquidity.
The legislative process is now moving forward. The European Parliament voted 416 to 169 on July 9 to begin formal negotiations, with the first session held four days later. Lawmakers are targeting a final agreement by the end of 2026, putting the first issuance of the digital euro on track for 2029.
