Tether CEO Warns of Potential European Bank Breakdowns
Paolo Ardoino, the CEO of Tether, has raised alarms about the European financial landscape, highlighting how perilous lending practices coupled with new cryptocurrency regulations could precipitate bank failures across the continent soon.
During a chat on the Less Less Noise More Signal Podcast, Ardoino critiqued the European Union’s framework governing Stablecoins.
He painted a concerning picture: imagine a small bank holding €6 billion in resilient Stablecoins but only backed by €10 billion with scant protection. He pointed out that “European banking insurance costs only €100,000.” He elaborated, “If you have €1 billion, it’s like fanning flames.”
Ardoino noted that like their global counterparts, European banks operate on a fractional reserve system. “They can use about 90% of deposits to lend to individuals looking to launch businesses.” In a scenario with €6 billion, this implies the bank could hand out €5.4 billion in loans.
He drew parallels to the collapse of Silicon Valley Bank in 2023, which highlighted the mismatch between deposits and actual cash on hand, leading to a rush for withdrawals. Ardoino cautioned that European banks follow a similar fractional model that might buckle under stress. He suggested that even a 20% withdrawal event could wipe out hundreds of millions from banks.
“If you’re a Stablecoin issuer, bankruptcy is on the horizon. It won’t be your fault, but rather the banks’. Banks will fail, leading to government reassurances that Stablecoins are too risky,” he said.
Ardoino continued to emphasize that European regulations are being devised to bolster the region’s banking sector and enhance liquidity, which, he warned, entails “significant systemic risks.” He compared this situation to UBS, suggesting that major banks are effectively encouraging smaller banks to cater to Stablecoin issuers, thereby amplifying risk.
His comments come amidst rising interest in Latin American agricultural producer Adecoagro, as Tether prepares to roll out a US-based Stablecoin product while continuing to back various projects outside its current ecosystem.
