European Central Bank Executive Board member Piero Cipollone told Italian bankers on Friday that stablecoin adoption poses a direct threat to commercial banks’ retail deposit base, framing a future digital euro as the mechanism that would keep traditional lenders at the center of European payments.
The remarks, delivered to Italy’s Federation of Cooperative Credit Banks in Rome, arrived two days after the ECB announced it had selected 36 payment service providers for a 12-month digital euro pilot scheduled to begin in the second half of 2027. The sequence was not coincidental: Cipollone was making the case for why Europe’s banks should welcome a central bank digital currency rather than view it as yet another competitor.
Banks Already Losing Ground to Mobile Payment Providers
Cipollone’s speech laid out what he described as an accelerating structural shift. Digital payments, he argued, are reshaping banking and increasing Europe’s reliance on non-European payment infrastructure. Banks are already hemorrhaging payment fees and transaction data to mobile payment providers, and the trend shows no sign of reversing.
The concern is not hypothetical. Mobile wallets and payment apps from firms headquartered outside the euro area now handle a growing share of point-of-sale and peer-to-peer transactions in Europe. Each tap that bypasses a bank card is a fee that doesn’t flow to a European lender and a data point that doesn’t land in a European database.
Stablecoins, in Cipollone’s telling, represent the next phase of this erosion. A stablecoin pegged to the dollar or even the euro but issued by a non-bank entity draws deposits away from the banking system entirely. A user holding USDC or USDT on a self-custodied wallet is not holding a bank deposit. The funds backing that stablecoin may sit in Treasury bills or money-market instruments, but they do not sit on a bank balance sheet where they can be lent out at a spread.
The math is straightforward: every euro parked in a stablecoin is a euro not parked in a savings account. At scale, that dynamic compresses the deposit funding that European banks rely on to extend credit.
Digital Euro Pilot: 36 Providers, 12 Months, Launch by Late 2027
The ECB announced Tuesday that it had selected 36 payment service providers for the digital euro pilot. The cohort includes banks, fintechs, and payment companies, though the central bank did not publish a full list of names. The pilot is set to run 12 months starting in the second half of 2027.
The project is designed to test how a retail CBDC could operate across the euro area before any decision on issuance. The ECB has said that decision could come as early as 2029, meaning the pilot is the final proving ground before policymakers commit.
If issued, the digital euro would function as a direct liability of the ECB, accessible to ordinary consumers. That is a meaningful distinction from commercial bank deposits, which are liabilities of private institutions backstopped by deposit insurance and, ultimately, central bank liquidity facilities. A digital euro would carry no credit risk beyond the eurozone itself.
Cipollone’s pitch to the Italian bankers was that this need not spell doom for lenders. “The digital euro would both preserve the role of public money and ensure banks remain involved in the payments ecosystem while continuing to meet their customers’ needs,” he said. The implication: banks would distribute and manage digital euro wallets, earning fees and maintaining customer relationships, even if the underlying currency is a central bank instrument rather than a bank deposit.
The Deposit Drain Scenario
How large could the deposit drain actually be? The ECB has not published a formal estimate of stablecoin-driven outflows, and Cipollone did not cite a specific figure in his Rome speech. But the arithmetic is not hard to sketch.
Euro-denominated stablecoins remain a small fraction of the global stablecoin market, which is still dominated by dollar pegs. The euro token market hit $1 billion earlier this year, a milestone that represented a doubling from the prior year but still a rounding error compared to the roughly €14 trillion in euro-area household deposits.
The threat Cipollone described is not today’s stablecoin market but tomorrow’s. If a major tech platform or payment network were to launch a euro-pegged stablecoin with seamless integration into consumer apps, adoption could scale far faster than the gradual growth seen so far. A user who can pay for groceries, split a bill, and earn yield on idle balances inside a single app has little reason to maintain a traditional bank account beyond regulatory requirements.
The deposit-drain scenario is not unique to Europe. In the United States, JPMorgan CEO Jamie Dimon warned earlier this year that banks would reject the CLARITY Act if stablecoin issuers could pay yield without bank-style oversight. The logic is identical: if non-bank issuers can offer a near-money product with yield and no friction, bank deposits become less attractive, and the traditional funding model weakens.
Why Banks Might Accept the Digital Euro
Cipollone’s argument to Italian cooperative banks was essentially a lesser-of-two-evils pitch. Yes, a digital euro would compete with bank deposits. But it would also keep the central bank, not a foreign tech giant or offshore stablecoin issuer, at the center of the monetary system. And banks would retain a role as intermediaries: onboarding customers, managing wallets, processing transactions, and earning fees.
That role is not guaranteed. The ECB could, in theory, offer direct digital euro accounts to consumers, cutting banks out entirely. Cipollone’s speech was a signal that the central bank does not intend to go that route, at least not initially. The pilot’s inclusion of banks, fintechs, and payment companies suggests a distribution model that preserves existing commercial relationships.
The cooperative banks in Cipollone’s audience have reason to pay attention. Cooperative and regional lenders in Europe are particularly dependent on retail deposits; they lack the wholesale funding access that larger institutions enjoy. A rapid shift of household savings into stablecoins or a digital euro without bank intermediation would hit smaller lenders disproportionately hard.
Europe’s Regulatory Edge on Stablecoins
The ECB’s stablecoin concerns land in a regulatory environment that is, by global standards, already quite prescriptive. The Markets in Crypto-Assets Regulation, or MiCA, has been in force since 2024 and requires stablecoin issuers in the EU to hold reserves in European banks, maintain liquidity buffers, and submit to ongoing supervision.
MiCA was designed in part to prevent the deposit-drain scenario Cipollone described. By requiring issuers to hold reserves in regulated banks, the framework keeps at least some of the funds within the banking system. But reserves are not the same as deposits: a stablecoin issuer holding euros at a bank is not lending those euros to the bank but rather maintaining them as backing for outstanding tokens.
The tension is real. MiCA creates a regulated pathway for euro stablecoins, which could encourage adoption. At the same time, the ECB is making clear it views even compliant stablecoins as a competitive threat to the deposit base it considers essential to monetary transmission.
Earlier this year, 14 new crypto-asset service providers were added to ESMA’s MiCA register, though the pace of licensing has slowed as regulators work through backlogs. The register now includes a mix of exchanges, custodians, and issuers, but no euro-stablecoin issuer has yet achieved the scale that would meaningfully move deposit aggregates.
What the 2029 Timeline Means for Markets
The ECB has said a decision on digital euro issuance could come as early as 2029. That timeline is conditional: the pilot must succeed, political will must hold, and the European Parliament must pass enabling legislation that currently remains in committee.
Three years is a long time in stablecoin markets. Tether has grown from a niche trading instrument to the third-largest crypto asset by market cap in roughly that span. A euro-pegged competitor with strong retail distribution could achieve similar scale if the right platform backed it.
For banks, the strategic calculus is uncomfortable. Opposing the digital euro risks ceding the retail payments space to private stablecoin issuers. Supporting it means welcoming a product that competes directly with the deposit funding model. Cipollone’s speech was an attempt to resolve that tension by promising banks a seat at the table, but the promise is only as durable as the political consensus behind it.
The ECB’s 36-provider pilot will be the first real test of whether the digital euro can function as a cooperative infrastructure rather than a disruptive one. If banks find the intermediation fees worthwhile and the customer experience competitive, they may embrace the CBDC as a hedge against private stablecoins. If the pilot reveals that consumers prefer holding digital euros directly with the central bank, the deposit-drain scenario Cipollone warned about could play out anyway, just with public rather than private money.
