BoE’s Stablecoin Regulation: £20k Cap & 40% Reserve Rule
Bank of England Deputy Governor Sarah Breeden unveiled a new stablecoin regulation framework targeting systemic stablecoins used in payments. The proposals cap individual holdings at £20,000 and business holdings at £10 million. Issuers must place 40% of backing assets as non-interest-bearing deposits at the Bank of England. These measures aim to prevent bank deposit outflows and ensure liquidity, drawing on lessons from the 2023 Silicon Valley Bank collapse—which trapped $3.3 billion of USDC reserves—and the brief USDC depeg. The stablecoin regulation balances feasibility with financial stability, replacing an earlier 100% reserve plan. By enforcing reserve requirements and holding limits, the Bank seeks to curb rapid confidence loss and preserve the UK’s deposit-funded lending system. Traders should watch for evolving rules, as they may alter stablecoin liquidity and market dynamics.
Neutral
The Bank of England’s move to impose a £20,000 cap and 40% reserve requirement on systemic stablecoins represents a regulatory tightening that may constrain stablecoin issuance and liquidity in the short term. Similar to past measures like the EU’s MiCA framework, it seeks to bolster confidence and prevent bank runs, which could reduce volatility. Traders might see reduced stablecoin flows but greater trust in peg stability. In the long term, clearer rules can support institutional adoption by mitigating liquidity risks, balancing innovation and safety. Overall, the impact is neutral: some short-term friction for stablecoin tokens, offset by enhanced market resilience.