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ECB warns digital euro could trigger €700 billion bank run risk

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A European Central Bank (ECB) simulation has found that a digital euro could drain up to €700 billion in deposits from commercial banks during a severe financial panic, potentially pushing about a dozen eurozone lenders into a liquidity squeeze.

The study, published on Friday and requested by European lawmakers, explored how the introduction of a central bank–backed digital currency might affect financial stability. In a worst-case “flight-to-safety” scenario, the ECB estimated that depositors could shift €699 billion—about 8.2% of all retail sight deposits—into digital euros if each user were allowed to hold up to €3,000.

The ECB said 13 of 2,025 banks in its analysis would breach their mandatory Liquidity Coverage Ratio (LCR) under such stress. Smaller lenders relying heavily on household deposits would face the greatest strain.
“In a digital age, bank runs happen much quicker and much more forcefully than before,” warned Markus Ferber, a European Parliament lawmaker, urging caution over high holding limits.

However, the central bank described the scenario as “highly unlikely.” Under normal conditions, outflows would total just over €100 billion, well within safe liquidity margins. The ECB said lower holding caps of €500–€2,000 would sharply reduce risk and confirmed that such limits “safeguard the stability of the financial system.”

The study also found that a €3,000 limit could trim banks’ return on equity by 0.3 percentage points, varying by country.
“You can only make the digital euro attractive if you’re willing to hurt banks a little,” said Fabio De Masi, a German MEP.

ECB Eyes Trump’s Crypto Plan to Accelerate Digital Euro Development

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The European Central Bank (ECB) hopes that U.S. President Donald Trump’s support for cryptocurrencies pegged to the U.S. dollar will speed up legislative progress for the digital euro, according to ECB board member Piero Cipollone. The ECB sees its digital euro as an alternative electronic payment method that could lessen Europe’s dependence on U.S. companies like Visa and PayPal.

Cipollone noted that Trump’s backing of globally available stablecoins tied to the U.S. dollar would further expand U.S.-dominated payment systems, adding urgency to the digital euro initiative. The European Commission proposed digital euro legislation in June 2023, but progress has been slow amid skepticism from some lawmakers and financial institutions.

“The political world is becoming more alert to this,” Cipollone said in a recent interview. “And it’s possible that we will see an acceleration in the process.” He expressed hope that the European Parliament and Council would finalize their work on the legislation by summer, allowing for negotiations with the Commission. If all goes as planned, the rules could be finalized by November, when the ECB is set to decide whether to launch the digital euro.

EU lawmaker Markus Ferber mentioned that the Parliament might only have a report ready by summer, signaling slower progress than expected.

Cipollone raised concerns about the growing use of U.S. stablecoins, as they could encourage Europeans to transfer their deposits to the U.S. in favor of using dollar-backed stablecoins for payments. This shift, he argued, would further strain European banks as they lose deposits to U.S. platforms.

Bankers are also wary of the digital euro, fearing that it could lead customers to move their funds into ECB-backed digital wallets. To alleviate such concerns, the ECB has proposed capping the holdings in digital euro wallets at a few thousand euros and not offering interest on these deposits.

Globally, other countries, including Nigeria, Jamaica, and the Bahamas, have already launched central bank digital currencies (CBDCs), with 44 other nations, including Russia, China, and Brazil, running pilots. In contrast, Trump has prohibited the U.S. Federal Reserve from issuing its own CBDC.