Sarah Breeden, Deputy Governor of the Bank of England, warned that loosening stablecoin rules could threaten the United Kingdom’s financial stability. Her warning links liquidity risks, loss of parity and systemic contagion, affecting issuers, banks and regulators as the consultation on the regime for systemic stablecoins moves toward an implementation planned for 2026. The proposed safeguards seek to preserve monetary sovereignty and prevent digital runs that would transfer risks to the traditional banking system.
Breeden placed her warning in historical and recent context, evoking episodes of instability in which rapid outflows caused liquidity crises and underscoring how similar dynamics could unfold in digital money markets.
The consultation launched by the regulator requires issuers of systemic stablecoins to hold up to 60% of their reserves in short-term government debt (gilts) and the remainder in highly liquid and safe assets, framing a reserve structure designed to withstand stress.
The provisional framework introduces temporary holding limits: £20,000 for individuals and £10 million for companies, measures conceived as macroprudential brakes to mitigate the mass transfer of bank deposits to digital money.
Breeden warned about two critical channels of harm: degradation in the quality of reserves, which increases the likelihood of a loss of parity (de-pegging), and opacity in audits and disclosure, which would hinder timely regulatory intervention. “Watered-down rules” —in her own words— would be equivalent, she said, to removing essential barriers against contagion risks.
Implications of stablecoin rules
The practical consequences derived from Breeden’s stance include effects on adoption, liquidity and the competitive position of issuers in the United Kingdom, shaping how the market may develop under stricter safeguards.
With greater preference for highly liquid assets, backing requirements raise the share of gilts in reserves, reducing the yield available to issuers. While holding limits cap mass migration from bank deposits, but also restrict the utility of stablecoins at scale.
“Watered-down rules are not merely a concession to market demands; they are a direct pathway to insufficient reserve backing”, a phrase attributed to Breeden in her public remarks, which summarizes her priority of safety over the pursuit of yield.
The next milestone is the planned implementation of the regime for systemic stablecoins in 2026, following the consultation phase that already sets limits and reserve requirements; the regulation will seek to balance commercial viability with safeguards that, according to the Bank of England, are indispensable to preserve financial stability.
