UK BoE Warns Easing Stablecoin Regulation Risk Credit Crunch
UK’s Bank of England Deputy Governor Sarah Breeden warned that loosening stablecoin regulation could threaten financial stability and spark a UK credit crunch. The draft stablecoin regulation framework published on November 9 caps individual holdings at £20,000 and business holdings at £10 million. Issuers must also park 40% of reserves in non-interest-bearing Bank of England deposits to boost liquidity.
Breeden cited the 2023 Silicon Valley Bank collapse—when Circle’s USDC lost its peg after its assets were frozen—as evidence of systemic risk for UK credit markets. The consultation runs until February 10, 2026, with final rules due by year-end 2026. Critics warn these liquidity rules and holding caps may push stablecoin innovation offshore. The BoE says these temporary measures are vital to defend credit creation and market stability in a multi-money financial system.
Neutral
The BoE’s draft stablecoin regulation imposes holding caps and liquidity requirements on issuers, notably affecting USDC in the UK. In the short term, these measures may curb UK demand and slow local issuance, yet global liquidity and peg-supporting safeguards can bolster confidence in USDC’s stability. By limiting rapid outflows, the rules reduce systemic bank risks and protect credit markets, mitigating volatility. Over the long term, clearer regulation can encourage broader adoption and institutional use, enhancing market stability. Hence, the price impact on USDC itself is expected to balance out, resulting in a neutral effect.