European Central Bank President Christine Lagarde warned at the annual European Systemic Risk Board conference in Frankfurt that foreign-issued stablecoins could create significant cross-border liquidity mismatches and undermine EU safeguards. She highlighted that some issuance models split reserves across jurisdictions, exposing investors to redemption risk when tokens are sold or redeemed in a crisis.

Lagarde noted that the Markets in Crypto-Assets Regulation (MiCAR) is an important step, requiring stablecoin issuers to hold bank deposits and guarantee par‑value redemptions. However, she stressed those protections weaken when issuers or co‑issuers operate outside EU supervision, increasing the potential for regulatory arbitrage.

Multi-issuance schemes — arrangements where an EU‑based firm and a foreign entity issue the same token — are particularly problematic. In stressed conditions, investors will naturally seek redemption under the stricter regime, concentrating pressure on EU‑held reserves and creating the same hazards seen with money market funds and cross‑border banking liquidity runs.

“Stablecoins may appear novel but carry risks regulators already recognise: instant‑redemption promises backed by less liquid or higher‑risk assets can trigger sudden outflows and redemption shortfalls.”

Lagarde compared the liquidity‑management challenges to those of banking groups that move funds across borders, arguing that stablecoin issuers should face comparable requirements so redemption claims and corresponding funds remain colocated.

She called for stronger international cooperation to prevent liquidity risks from shifting to jurisdictions with weaker rules, and urged that gaps in supervision be closed before foreign‑linked tokens are widely allowed into EU markets. The message underscores a widening regulatory focus on operational and cross‑border resilience in the stablecoin sector.

For market participants, the remarks signal closer scrutiny of issuance structures and reserve practices, and the potential for coordination‑driven regulatory measures that limit multi‑jurisdictional reserve allocation. Key implications include:

• Heightened examination of where reserves are held and how they can be accessed under stress
• Greater risk that foreign-linked issuance models will face restrictions or additional compliance requirements
• Potential for cross‑border regulatory coordination to close supervision gaps before tokens enter EU markets

Regulators across jurisdictions now face pressure to align oversight, or risk new channels of systemic stress emerging as stablecoins scale. The ECB’s remarks make clear that closing supervisory gaps and ensuring colocation of redemption claims and funds are priorities before allowing widespread market access for foreign-linked stablecoins.