The European Central Bank is adding its voice to banks in the United States in warning that widespread adoption of stablecoins could pull retail deposits out of traditional banks, weakening a critical source of funding for lending.
ECB Executive Board member Piero Cipollone said banks have already lost ground to mobile apps and other digital payment providers, which can capture transaction fees and valuable customer data, Decrypt reported Friday (July 17). Stablecoins could pose a more fundamental threat by allowing consumers to move money outside conventional bank accounts altogether.
“If the use of stablecoins increases in the future, banks will also lose retail deposits,” Cipollone told a banking conference in Rome, per the report.
The concern reflects the central role deposits play in banking. Banks use customer deposits as a relatively stable and inexpensive source of funding for loans to households and businesses. If consumers increasingly convert deposits into privately issued stablecoins, banks could face higher funding costs or have fewer resources available for lending.
The threat could be particularly significant for small institutions. Cipollone addressed executives from Italy’s cooperative banking sector, where about half of branches serve towns with fewer than 10,000 residents, according to the report. Such banks depend heavily on local customer relationships, deposits and transaction information to support their lending businesses.
Stablecoins, typically crypto tokens designed to maintain a fixed value against a fiat currency, have grown into a roughly $300 billion global market that remains mostly denominated in U.S. dollars, the report said. Unlike many FinTech payment services, which ultimately rely on traditional banking infrastructure, stablecoins can allow users to hold and transfer value outside conventional deposit accounts.
The ECB’s concerns echo arguments made by U.S. banking groups during debates over federal stablecoin legislation. American banks and their trade associations have warned that stablecoins could encourage consumers to shift money out of insured bank deposits, particularly if issuers or affiliated platforms can offer yield or rewards. They argue that significant deposit migration could raise banks’ funding costs and constrain credit availability, with community banks potentially facing disproportionate effects.
For the ECB, the answer is not to resist digital payments but to provide a public alternative, the digital euro.
The proposed central bank digital currency would function as government-backed electronic cash while preserving a role for commercial banks and other regulated intermediaries. Under the design, banks would maintain customer relationships, receive payment-related revenue and retain access to transaction information rather than being displaced by private stablecoin platforms.
The approach carries its own deposit-flight risk, however. A risk-free digital euro could theoretically attract money away from commercial bank accounts, the report said. The ECB plans safeguards, including limits on individual digital euro holdings and a prohibition on paying interest, reducing incentives for consumers to use it as a savings vehicle rather than primarily for payments.
The project is moving closer to implementation. The ECB has selected 36 payment providers, including major banks and FinTech companies, for a 12-month pilot scheduled to begin in the second half of 2027, according to the report. European lawmakers are aiming to reach agreement on the digital euro framework by the end of 2026, with potential first issuance targeted for 2029.
The ECB’s warning therefore frames stablecoins as more than a crypto-regulation issue. As private digital money competes increasingly with bank deposits, policymakers on both sides of the Atlantic are confronting the same question.
How can they encourage payment innovation without undermining the deposit-funded banking model that supports much of the traditional credit system?