The European Central Bank is signalling alarm about stablecoins, but not for the reasons typically cited by regulators. According to reporting by Decrypt, ECB board member Piero Cipollone framed the threat last week not as a financial stability risk, but as something more immediate: the potential loss of retail deposits that banks depend on to fund lending.
Speaking at a banking conference in Rome on Friday, Cipollone outlined a problem European lenders face in layers. Mobile payment apps have already cost them transaction fees and customer data. Now, stablecoins—privately issued digital tokens pegged to the dollar—could strip away the deposit base itself.
“If the use of stablecoins increases in the future, banks will also lose retail deposits,” he said. The concern is not academic for regional lenders. Half of Italy’s cooperative bank branches operate in towns with fewer than 10,000 residents, making them particularly vulnerable to any disruption in local payment flows or deposit pools.
Deposits as the foundation of lending
The distinction matters. A bank losing payment data is an inconvenience. A bank losing deposits is an existential problem.
Deposits fund the loans banks extend to businesses and homeowners. When customers hold stablecoins in digital wallets instead of bank accounts, that capital leaves the traditional system entirely. For small cooperative banks already operating on thin margins, reduced lending capacity translates directly to reduced economic activity in their communities.
Cipollone noted that mobile payments already exceed one in ten point-of-sale transactions in Ireland, the Netherlands, and Finland. Banks typically pay higher fees to process these payments while receiving no transaction data—a pattern that accelerates as adoption grows. Stablecoins threaten to bypass the banking system altogether.
The global stablecoin market currently sits at approximately $300 billion, nearly all denominated in dollars, according to DefiLlama data. That’s capital that could theoretically flow out of European deposit accounts.
The digital euro as structural response
Rather than tighten stablecoin regulation alone, the ECB is pursuing a parallel strategy: issuing its own digital currency. A central bank digital currency would let the ECB compete on the same terms as stablecoins while keeping money flows within the banking system.
The ECB has already selected 36 payment service providers for a pilot programme launching in the second half of 2027. The list includes major banks like Deutsche Bank and UniCredit, as well as fintech platform Revolut. The 12-month pilot will test the mechanics of digital euro distribution and settlement.
The design protects banks’ revenue streams. Under the current architecture, commercial banks retain customer accounts, earn interchange fees, and access transaction data. The digital euro itself will pay no interest and have holding limits, removing incentives to park large sums in it instead of traditional deposit accounts.
Legislative momentum building
The legislative process is moving faster than many expected. The European Parliament voted 416 to 169 last week to begin formal negotiations on the digital euro framework. Cipollone confirmed that negotiating sessions have already commenced, with lawmakers targeting a legislative deal by the end of 2026. First issuance is targeted for 2029.
That timeline matters for European banks. It signals that regulators view stablecoin adoption as a near-term threat, not a distant concern. The faster the digital euro moves toward implementation, the sooner European lenders can offer their customers a government-backed alternative to dollar-denominated stablecoins.
Critics remain unconvinced that a risk-free, government-issued digital wallet won’t drain deposits just as readily as a stablecoin would. The ECB’s own financial stability analysis disputes this, concluding that the holding limits and zero interest rate design pose no material risk to bank liquidity. Market behaviour will ultimately test that assumption.